Annika Scholten bought a 10000.00,13-week Treasury bill at 5%. What is her effective rate? Round to the nearest hundredth percent
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To calculate the effective rate, we need to determine the yield of the Treasury bill. The formula to calculate the yield is:
Yield = (Face Value - Purchase Price) / Purchase Price
In this case, the face value is $10,000.00, and the purchase price is not given. However, we know that the Treasury bill is bought at a discount of 5%.
To find the purchase price, we can use the formula:
Purchase Price = Face Value - Discount
To calculate the discount amount:
Discount = Face Value * (Discount Rate / 100)
Now we can substitute the values into the formulas:
Discount = $10,000.00 * (5 / 100) = $500.00
Purchase Price = $10,000.00 - $500.00 = $9,500.00
Using the purchase price, we can calculate the yield:
Yield = ($10,000.00 - $9,500.00) / $9,500.00 = 0.0526 (rounded to 4 decimal places)
Finally, to convert the yield to a percentage, we multiply by 100:
Effective Rate = 0.0526 * 100 = 5.26%
Therefore, Annika Scholten's effective rate on the Treasury bill is 5.26% (rounded to the nearest hundredth percent).