An investor buys a 180 day T-bill at a bank discount quote of 3.86. The investor's...
An investor buys a 180 day T-bill at a bank discount quote of 3.86. The investor's actual annual rate of return on this investment was ______.
22.00%
17.19%
3.99%
13.99%
Homework Answers
Actual annual rate of return on the investment = [100/price - 1] * 365 / maturity days
=[100/98.07 - 1] * 365 / 180
=[1.01968 -1] * 365 / 180
= 0.01968* 365 / 180
= 3.99%
Note:- Price of T-Bill = par value [1 - (discount rate * maturity days / 360)]
= $100 * [1 - (0.0386 * 180 / 360]
= $100 * [1 - 0.0193]
= 98.07
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