Question

Calculate the effective rate of interest (to the nearest hundredth percent) of the following Treasury bill. Given: $10,000 Treasury bill, 3.85% for 13 weeks.

Answer 1

A useful formula for finding the effective rate on discounted notes is
.. (effective rate) = r/(1 -rt)

If we assume a 52-week year, the t = (13 weeks)/(52 weeks) = 1/4.
.. (effective rate) = 0.0385/(1 -0.0385/4) ≈ 0.038874 ≈ 3.89%