Register
A six-month $10,000 treasury bill is selling for $9,844. What is the annual yield ac-cording to the discount method? does this yield understate or overstate the true annual compound yield? Explain.
5,233 views
28 votes
28 votes
A six-month $10,000 treasury bill is selling for $9,844. What is the annual yield ac-cording to the discount method? does this yield understate or overstate the true annual compound yield? Explain.

User John Madieu
by
2.9k points

1 Answer

22 votes
22 votes

Answer:

According to the given information,

We also have the following:

The formula for calculating the annual yield using the discount method is:

The annual yield using the discount methodis

The annualized compound yield is

User Generalhenry
by
2.8k points
Ask a Question
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

1.6m questions

2.0m answers

Other Questions

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then a. the demand curve for dollars shifts to the left. b. the demand curve
If you buy a one-year bond for $4,000 and the issuer pays you back $5,000 at the end of one year, the interest rate on the bond is
The market value of the equity of Hudgins, Inc., is $582,000. The balance sheet shows $21,000 in cash and $192,000 in debt, while the income statement has EBIT of $93,000 and a total of $137,000 in depreciation
Kylie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option
Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow: (1) Work full time at a local accounting firm
Link Copied!