Question

A T-bill quote sheet has 60-day T-bill quotes with a 4.95 ask and a 4.89 bid. If the bill has a $10,000 face value, an investor could sell this bill for _____.
a. $9,918.50
b. $9,919.62
c. $9,917.50
d. $10,000

Answer 1

Answer:

c. $9,917.50

Explanation:

The bid price is the rate at which an investor will buy (4.89). While the ask price is the rate at which the T bill will be sold ($4.95).

In this question we are concerned with the ask price.

To calculate the selling price use the following formula

Yield discount= (face value-price)/face value * (360/maturity)

4.95%= (10,000- price)/10,000 * (360/60)

Cross-multiply

10,000 * 0.0495= (10,000- price) * 6

495/6= 10,000- price

price= 10,000-82.5

Price= $9,917.50

Answer 2

Answer:The correct answer is a). $9,918.50

Explanation: In selling, the investor will use the bid price of $4.89 alongside the face value of the bill.

That is to say, the face value * (1-(bid price * no. of days)/days in a year) = 10000 * (1-(0.0489*60)/360) = $9,918.50