Calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of the Treasury bill (T-bill) purchase. Round effective interest rate to the nearest hundredth of a percent. Purchase Price Discount Face Value Effective Rate (%) Term Interest Rate (%) (weeks) $60,000 4.60 26 $1 $4 %
Calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of the Treasury bill (T-bill) purchase. Round effective interest rate to the nearest hundredth of a percent. Purchase Price Discount Face Value Effective Rate (%) Term Interest Rate (%) (weeks) $60,000 4.60 26 $1 $4 %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### Treasury Bill Calculation
The following table is designed to help calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of a Treasury bill (T-bill) purchase. Please note that the effective interest rate should be rounded to the nearest hundredth of a percent.
| **Face Value** | **Discount Rate (%)** | **Term (weeks)** | **Interest** | **Purchase Price** | **Effective Rate (%)** |
|----------------|--------------------------|-------------------|-------------|--------------------|------------------------|
| $60,000 | 4.60 | 26 | $ | $ | % |
#### Calculation Steps:
1. **Calculate Interest**:
- Use the formula:
\[
\text{Interest} = \text{Face Value} \times \left( \frac{\text{Discount Rate} \times \text{Term}}{52} \right)
\]
- Input values: Face Value = $60,000, Discount Rate = 4.60%, Term = 26 weeks.
2. **Calculate Purchase Price**:
- Use the formula:
\[
\text{Purchase Price} = \text{Face Value} - \text{Interest}
\]
3. **Calculate Effective Rate**:
- Use the formula:
\[
\text{Effective Rate} = \left( \frac{\text{Interest}}{\text{Purchase Price}} \right) \times \left( \frac{52}{\text{Term}} \right) \times 100
\]
Fill out the blank fields in the table as per the instructions using the formulas above. This will provide the necessary financial metrics for evaluating the T-bill purchase.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff7589908-5146-4329-82d4-56f8d46b656b%2Ff272b0b7-cadc-4c15-9dfa-fd1397cf42aa%2Ffwtasvr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Treasury Bill Calculation
The following table is designed to help calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of a Treasury bill (T-bill) purchase. Please note that the effective interest rate should be rounded to the nearest hundredth of a percent.
| **Face Value** | **Discount Rate (%)** | **Term (weeks)** | **Interest** | **Purchase Price** | **Effective Rate (%)** |
|----------------|--------------------------|-------------------|-------------|--------------------|------------------------|
| $60,000 | 4.60 | 26 | $ | $ | % |
#### Calculation Steps:
1. **Calculate Interest**:
- Use the formula:
\[
\text{Interest} = \text{Face Value} \times \left( \frac{\text{Discount Rate} \times \text{Term}}{52} \right)
\]
- Input values: Face Value = $60,000, Discount Rate = 4.60%, Term = 26 weeks.
2. **Calculate Purchase Price**:
- Use the formula:
\[
\text{Purchase Price} = \text{Face Value} - \text{Interest}
\]
3. **Calculate Effective Rate**:
- Use the formula:
\[
\text{Effective Rate} = \left( \frac{\text{Interest}}{\text{Purchase Price}} \right) \times \left( \frac{52}{\text{Term}} \right) \times 100
\]
Fill out the blank fields in the table as per the instructions using the formulas above. This will provide the necessary financial metrics for evaluating the T-bill purchase.
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