The Treasury Department auctioned $21 billion in 3-month bills in denominations of $10,000 at a discount rate of 4.965%.


What would be the effective rate of interest? (Use calendar year. Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)

To determine the effective rate of interest, we need to consider the discount rate and the duration of the investment. In this case, the Treasury Department auctioned $21 billion in 3-month bills at a discount rate of 4.965%.

The discount rate is the rate at which the bills are sold below their face value. To find the discount amount, we can multiply the face value of the bills ($10,000) by the discount rate (4.965% or 0.04965).

Discount Amount = $10,000 x 0.04965 = $496.50

The effective rate of interest is then calculated by dividing the discount amount by the face value of the bills and multiplying it by the number of times the bills are issued in a year (assuming a calendar year).

Number of times the bills are issued in a year = 365 days / 3 months = 121.67

Effective Rate of Interest = (Discount Amount / Face Value) x Number of times the bills are issued in a year

Effective Rate of Interest = ($496.50 / $10,000) x 121.67

Effective Rate of Interest = 0.04965 x 121.67 = 6.03%

Therefore, the effective rate of interest for the $21 billion in 3-month bills is approximately 6.03%.