(a) To buy a Treasury bill (T-bill) that matures to $10,000 in 12 months, you must pay $9700. What rate does this earn?

(b) If the bank charges a fee of $20 to buy a T-bill, what is the actual interest rate you earn?

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  1. a. P = Po + Po*r*t.
    P = $10,000, Po = $9700, t = 1 yr. r = Annual % rate = ?.

    b. P = Po + Po*r*t. Po = $9720, All other inputs remain the same. r = ?.

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