sam buys a $10,000.00 teasury bill at 5 1/2% what is the effective ratr?
To find the effective rate of a Treasury bill, we need to consider the nominal rate (in this case, 5 1/2%) and the frequency of compounding or the number of times the interest is calculated.
The effective rate is the actual rate of interest earned or paid over a specific period, taking into account the compounding frequency.
In this case, we need to determine the compounding frequency or the number of times the interest is calculated per year. The compounding frequency for Treasury bills can vary, but let's assume it compounds annually.
To calculate the effective rate, we can use the formula:
Effective Rate = (1 + (Nominal Rate / Compounding Frequency))^Compounding Frequency - 1
In this case, the nominal rate is 5 1/2% or 0.055 as a decimal, and the compounding frequency is once a year.
Plugging these values into the formula, we get:
Effective Rate = (1 + (0.055 / 1))^1 - 1
= (1 + 0.055)^1 - 1
= 1.055 - 1
= 0.055 or 5.5%
Therefore, the effective rate for Sam's $10,000 Treasury bill at 5 1/2% nominal rate, compounded annually, is 5.5%.