Your company has $50,000 of additional funds it will need in three months to pay annual...
Your company has $50,000 of additional funds it will need in three months to pay annual employee bonuses. The money is sitting in an account that pays no interest. The company can invest it all into 13-week (91 day) Treasury bills, with a discount rate of 0.185%.
A. How much of the investment will the government utilize
B. How much total interest will the company earn on the funds
C. How much money will the government pay back to your company at maturity
Homework Answers
A]
The government will utilize the price paid to purchase the bonds.
Price paid to purchase bonds = $50,000
B]
Interest earned on funds = amount invested * discount rate * (days to maturity / 360)
Interest earned on funds = $50,000 * 0.185% * (91 / 360)
Interest earned on funds = $23.38
C]
Amount paid back by government = amount invested + interest earned
Amount paid back by government = $50,000 + $23.38 = $50,023.38
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