Question

The yield on a discount basis of a 90-day, $1,000 Treasury bill selling for $950 is

A) 5 percent.
B) 10 percent.
C) 15 percent.
D) 20 percent.

Answer 1

The yield on a discount basis of a 90-day $1,000 Treasury bill selling for $950 is approximately 20.053%. Since the options provided don't match exactly, the closest and correct choice is D) 20 percent.

Step-by-step explanation:

To calculate the yield on a discount basis of a 90-day $1,000 Treasury bill selling for $950, you must understand that yield on a discount basis measures the return on investment based on the face value of the security.

The formula for calculating this yield is: Yield = [(Face Value - Purchase Price)/Purchase Price] x (360/Days to Maturity).

In this case, the face value is $1,000, the purchase price is $950, and the days to maturity are 90 days.

So the calculation would be: Yield = [($1,000 - $950) / $950] x (360/90), which simplifies to Yield = ($50 / $950) x 4. Calculating this gives us a yield of (0.05263) x 4, resulting in a yield of approximately 0.20053 or 20.053%.

Since the choices provided don't include 20.053%, the closest choice and correct answer is D) 20 percent.