Question

Suppose you are looking to buy a $5000 face value 26-week T-bill. If you want to earn at least 1% annual interest, what is the most you should pay for the T-bill?

Answer 1

Answer:

the most you should pay for the T-bill is $4975.12

Step-by-step explanation:

If you want 1% per year, you will want 0.5% in 26 weeks [52 weeks in a year].

Hence, the face value would be 100.5% of your investment that you make. Thus we can create an equation as [letting x be the amount invested, amount you should pay]:

$1.005 x = 5000$

Solving gives us:

$1.005 x = 5000\\x=\frac{5000}{1.005}\\x=4975.12$

Thus, the most you should pay for the T-bill is $4975.12

Answer 2

Answer:

$4,975.12

Step-by-step explanation:

To find out the value of a Treasury bill that we can pay the most, with this specific return rate, we can use the simple interest formula. Let this value be P. It is important to say: We're also using an equivalence for time for 26 weeks it is half a year, 180 days over a financial year of 360 days. And for i, we're plugging in 1%=0.01

$F=P(1+it)$

F=Face Value

P= Value

i= interest rate

t= Time

$5000=P(1+0.01.\frac{180}{360})$

$5000=P(1+0.005)\\ 5000=1.0005P\\ \frac{5000}{1.005}=\frac{1.005}{1.005}P\\ P=4975.12$