Question

Jie purchased two U.S. Treasury bills on the same day. The first one will mature in 13 weeks for $14,000, with quoted rate of 1.93%. The other one will mature in 26 weeks for $19,000 and has a quoted rate of 2.35%. What is Jie's annual effective yield (as a percent) for the 26-week period, assuming that there are 365 days in a year?

Answer 1

Answer:

J-QR =0.96

Step-by-step explanation:

Quoted interest rate(QR) is nominal interest rate that does not take compounding into consideration

Effective interest rate(J) is real interest rate that accounts for compounding

face value of tbill = 100,000

price = 95,000

time remaining for maturity, n = 180

QR T-Bill = [(Face Value - Price)/(Face Value)] *(360/n) = [(100,000-95,000)/100,000]*(360/180) = (5000/100,000)*2 = 0.10 or 10%

j = (1+ ((Face Value - Price)/price))(365/n) -1 = (1+((100,000-95,000)/95,000))(365/180) -1 = (1+(5000/95000))2.027778 -1 = 0.1096131

j = 0.1096131 or 10.96131% or 10.96%

Therefore j-QR = 10.96-10 = 0.96%