Question

What's the effective interest rate of an 8% 13-week Treasury bill? Assume it's a $10,000 Treasury bill, and round your answer to the nearest hundredth percent.

Answer 1

8.24 %

Explanation:

It is given that Interest rate is 8% for 1 year i.e. 52 Weeks.

and they are asking the interest rate for 13 weeks so

there will be total 52/13=4 terms in the year.

Now we know that

the formula for Effective Interest rate is

`r=(1+(i)/(n))^(n) -1`

where

r = The effective interest rate

i = The stated interest rate

n = The number of compounding periods per year

so from above it is clear that i=8% =0.08 and n=4 now after putting all the values in the above formula we will get like this

`r=(1+(0.08)/(4) )^(4)-1`

=1.08243-1

=0.08243

=8.24% (nearest hundredth)