Question

6. What annual interest rate is earned by a 90-day Treasury Bill (T-bill) with a maturity value of $4,000 that sells for $3,900

Answer 1

To find the annual interest rate of a 90-day T-bill, calculate the interest earned for the period, then annualize by multiplying by the number of 90-day periods in a year. The annual interest rate for the T-bill in the question is 10.24%.

Step-by-step explanation:

The annual interest rate earned by a 90-day Treasury Bill (T-bill) with a maturity value of $4,000 that sells for $3,900 can be calculated as follows:

1. Find the interest earned, which is the difference between the maturity value and the selling price: $4,000 - $3,900 = $100.
2. Calculate the interest rate for the 90-day period: ($100/$3,900) * 100 = 2.56%.
3. Since the T-bill matures in 90 days, to annualize the rate, multiply by the number of 90-day periods in a year, which is 4: 2.56% * 4 = 10.24%.

Therefore, the annual interest rate is 10.24%.