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Assume a $1,000 Treasury bill is quoted to pay 5 percent interest over a six-month period. a. How...

Question:

Assume a $1,000 Treasury bill is quoted to pay 5 percent interest over a six-month period.

a. How much interest would the investor receive?

b. What will be the price of the Treasury bill?

c. What will be the effective yield?

Treasury Bills:

Treasury bills are issued by the U.S government and their maturity range from a period of 4 weeks to 1 year. The price of the treasury bill is determined by subtracting the interest payable until maturity from the face value of the treasury bill.

Answer and Explanation:

Question A)

Interest is calculated as,

  • Interest = Principal * rate * time
  • Interest = $1,000 * 5% * 6/12
  • Interest = $25


Question B)

Price of the...

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Government Securities: Definition, Types & Examples

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 12
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