Question

A T-bill quote sheet has 90-day T-bill quotes with a 5.32 ask and a 5.26 bid. If the bill has a $10,000 face value, an investor could sell this bill for:

a) $5,320
b) $5,260
c) $10,000
d) $10,530

Answer 1

An investor could sell a 90-day T-bill with a 5.26% bid price and a $10,000 face value for less than the face value. After calculating the discount using the bid price, it is determined that the investor would sell the bill for approximately $9,474, which is none of the provided answer choices.

Step-by-step explanation:

The scenario presented involves an investor looking to sell a 90-day T-bill before its maturity. The ask price is the price at which the investor could buy the T-bill, while the bid price is the price at which they could sell it. The bid price here is 5.26%, which means the investor would receive less than the face value when selling the bill.

To calculate the selling price of the T-bill, we follow these steps:

1. Convert the bid price to a decimal: 5.26% becomes 0.0526.
2. Calculate the discount by multiplying the bid rate by the face value of the T-bill: $10,000 x 0.0526 = $526.
3. Deduct the discount from the face value to find the selling price: $10,000 - $526 = $9,474.

Therefore, none of the options a) $5,320 b) $5,260 c) $10,000 d) $10,530 are correct; the investor could sell the bill for approximately $9,474.