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Mice21 [21]
3 years ago
7

An investor buys a T-bill at a bank discount quote of 4.80% with 150 days to maturity. The investor's bond equivalent yield on t

his investment is _____.
a. 4.8%
b. 4.97%
c. 5.47%
d. 5.74%
Business
1 answer:
denis-greek [22]3 years ago
3 0

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.

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