On January 18, 2007, BusinessWeek reported yeilds on Treasury bills. Bruce Martin purchased a 10000.00 13-week Treasury bill at 9881.25 (a) What was the amount of interest? (b) What was the effective rate of interest?
8.16%
To calculate the amount of interest on a Treasury bill, you need to subtract the purchase price from the face value of the bill. In this case, the face value is $10,000.00 and the purchase price is $9,881.25.
(a) To calculate the amount of interest, you can use the formula:
Interest = Face Value - Purchase Price
Interest = $10,000.00 - $9,881.25
Interest = $118.75
Therefore, the amount of interest on the Treasury bill is $118.75.
(b) To calculate the effective rate of interest, you need to divide the amount of interest by the purchase price and then multiply by 100 to get a percentage.
Effective Rate of Interest = (Interest / Purchase Price) * 100
Effective Rate of Interest = ($118.75 / $9,881.25) * 100
Effective Rate of Interest = 1.2%
Therefore, the effective rate of interest on the Treasury bill is 1.2%.