Question

Suppose you are looking to buy a $5000 face value 26-week T-bill. If you want to earn at least 1% annual interest, what is the most you should pay for the T-bill?

Answer 1

the most you should pay for the T-bill is $4975.12

Explanation:

If you want 1% per year, you will want 0.5% in 26 weeks [52 weeks in a year].

Hence, the face value would be 100.5% of your investment that you make. Thus we can create an equation as [letting x be the amount invested, amount you should pay]:

`1.005 x = 5000`

Solving gives us:

`1.005 x = 5000\\x=(5000)/(1.005)\\x=4975.12`

Thus, the most you should pay for the T-bill is $4975.12

Answer 2

$4,975.12

Explanation:

To find out the value of a Treasury bill that we can pay the most, with this specific return rate, we can use the simple interest formula. Let this value be P. It is important to say: We're also using an equivalence for time for 26 weeks it is half a year, 180 days over a financial year of 360 days. And for i, we're plugging in 1%=0.01

`F=P(1+it)`

F=Face Value

P= Value

i= interest rate

t= Time

`5000=P(1+0.01.(180)/(360))`

`5000=P(1+0.005)\\ 5000=1.0005P\\ (5000)/(1.005)=(1.005)/(1.005)P\\ P=4975.12`