Tiffany purchased a $10,000, 13-week Treasury bill that's paying 2.25%. What is the effective rate on this T-bill?
A. 2.7%
B. 2.26%
C. 2.0%
I think its b
i think its b
jay discounts a 100-day note for 25,000 at 13%. the effective rate of interest to the nearest hundredth percent is what percent?
To find the effective rate on a Treasury bill, we need to use the formula for compound interest:
Effective rate = (1 + nominal rate / number of compounding periods) ^ number of compounding periods - 1
In this case, the nominal rate is 2.25% and the Treasury bill has a term of 13 weeks, which means it compounds quarterly. So we have:
Nominal rate = 2.25% = 0.0225
Number of compounding periods = 13 weeks / 13 weeks = 1
Plugging these values into the formula, we get:
Effective rate = (1 + 0.0225 / 1) ^ 1 - 1
Effective rate = (1 + 0.0225) - 1
Effective rate = 1.0225 - 1
Effective rate = 0.0225
To convert this to a percentage, we multiply by 100:
Effective rate = 0.0225 * 100 = 2.25%
Therefore, the effective rate on this T-bill is 2.25%. Since none of the given answer choices match exactly, it seems like there may be a mistake in one of the options. However, option B, 2.26%, is the closest to the actual effective rate of 2.25%.