In this instance, the answer is 4.97%. When Bank discount rate is $100,000.The bank discount rate is calculated as follows: face value - price /face value * 360/days to maturity
the formula for determining the bank rate of return is as follows
When we apply relevant information to the equation, we receive:
Bank discount rate = 100,000 97,500/ 100,000 *360/ 181 = 0.0497 = 4.97
Why is the bank discount generate not a realistic assessment of the refund on holding a Treasury bonds?
Because it is an annual rate rate of return based on the par value of the bills rather than the actual dollar amount of money invested, and it is calculated on a 360-day rather than a 365-day basis, the Discount Yield can be a misleading measure of the return on T-Bills (used for Treasury bonds and notes).
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