Question

What would be the underestimation of your earnings as an investor if you use the discount rate instead of the investment rate to measure the return on your investment if you buy a $5,000 T-bill that matures in 91 days for $4,999.55

Answer 1

Underestimation of my earnings is 0.0361%

Step-by-step explanation:

T bill is the short-term debt obligation which is backed by the government usually with a maturity of one year or less. It has low risk as it is backed by the governments.

Undereastimation of the earnings can be calculated as follow

Underestimation =
`(Buying value - Maturity Value )/(Buying value)` x
`(365)/(days to maturity)`

Underestimation =
`(5000 - 4999.55)/(5000)` x
`(365)/(91)`

Underestimation =
`(0.45)/(5000)` x
`(365)/(91)`

Underestimation = 0.000361

Underestimation = 0.0361%