Question

A T-bill quote sheet has 120-day T-bil quotes with a 5.07 bid and a 5.01 ask. If the bill has a $10,000 face value, an investor could buy this bill for

a) $9,831 00
b) $9835 29
c) $10,000
d) $9,833.00

Answer 1

An investor could buy the 120-day T-bill quoted with a 5.01 ask for less than its face value of $10,000, based on the understanding that T-bills are sold at a discount and the investor earns interest as the difference between the purchase price and the face value upon maturity.

Step-by-step explanation:

The subject of the question is Mathematics, specifically related to financial mathematics and the valuation of Treasury bills (T-bills). When dealing with a T-bill quote sheet that lists a 120-day T-bill with a 5.07 bid and a 5.01 ask, and a $10,000 face value, an investor can buy this bill at the ask price. To calculate the purchase price of a T-bill, one must understand that T-bills are sold at a discount from their face value and the investor receives the face value upon maturity. The difference between the purchase price and the face value represents the interest earned.