Question

can you solve this question using a financial Calulator?

78 A 210-day U.S. Treasury bill with a face value of $100,000 sells for $98,000 when issued. Assuming an investor holds the bill to maturity, the investor's money market yield is closest to: A) 1.19% B) 2.04% c) 3.50%.

Answer 1

Money market Yield or discount rate of T-bill = {(Face value of T-bills – Price of T-bill)/ Price of T-bill} * {number of days in a year/days remaining in maturity)

Where,

Face value of T-bill = $100,000

Price of T-bill P = $98,000

Number of days in a year = 365 days

Days remaining in maturity = 210 days

Money market Yield or discount rate of T-bill, i =?

Therefore,

Money market Yield or discount rate of T-bill, i = {($100,000 – $98,000)/$98,000} * (365/210)

Or i = {$2,000/ $98,000} * (365/210)

Or i = 0.035 or 3.50%

Money market Yield is closest to 3.50%

Therefore correct answer is option c) 3.50%