Which transaction would cause one asset to increase and another asset to decrease?
1 answer:
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Answer:
(a) The effective annual interest rate for a 3-month T-bill selling at $97,270 with par value $100,000 is 11.71%
(b) The effective annual interest rate for a 13% coupon bond selling at par and paying coupons semiannually is 13.42%
Explanation:
(a) A 3-month T-bill selling at $97,270 with par value $100,000
EAR =
n = 3 months or 12/3 = 4 times in a year
=
=
= 1.1171 - 1
= .1171 or 11.71%
b) EAR(coupon bond) =
=
=
= 1.1342 - 1
= .1342 or 13.42%