Question

You buy a $10,000 par treasury bill at $9,575 and sell it 60 days later for $9,675. what was your ear?

Answer 1

Answer:

The effective annual rate (EAR) is 6.52% .

Explanation:

EAR is the actual annualized return rate of an investment brings about, in which effect from compounding times within a year is taken into consideration.

Assume we use a 365-day-per year basis for compounding purpose, we have the below EAR calculation:

+ Return on 60-day investment = 9,675/9,575 - 1 = 1.044%;

+ EAR of the 60-day investment = (1+1.044%)^(365/60) - 1 = 6.52% ( which is understood that a year has 365/60 = 6.10 compounding periods).

So, the answer is 6.52%.  

Answer 2

To find the EAR:

EAR = (sold price/purchase price)^(days in year/days you had it) -1
EAR = (9,675/9,575)^(365/60)-1
EAR = .06524 

Then to make the decimal a percentage multiply the answer by 100.
EAR = .06524(100)
EAR - 6.52%