Answer: B. 4.97
Explanation: An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity. The
investor's actual annual rate of return on this investment is _____. Assume T-bills have a
face value of $10,000.
A. 4.8%
B. 4.97%
C. 5.47%
D. 5.74%
Two steps are required in solving the question.
Step 1: Find the price that the investor paid, this is given by:
$10,000 x [ 1 - ( ( (4/100) x 150) / 360)] = $9,800
Step 2: is to calculate the return to the investor at the end of tenure which is given by:
[(10000/9800) - 1] x (365/150) = 4.965% = 4.97% approximately.
