8 An investor bought a 250000 364day Treasury bill 200 days

8) An investor bought a $250,000 364-day Treasury bill, 200 days before maturity at $245,000. She sold the T- bill 77 days later at market rate 2.5%. Draw a timeline. (6 marks total) al What yield (interest rate) did she buy the T-bill for? b/ How much did she sell the T-bill for ? c/ What rate of return did she realize on her investment?

Solution

a). P = Face Value ( 1- days to maturity/364 * discount yield )

= 250000 (1- 200/364 * discount yield)

.98 = .4505  * discount yield

discount yield = 2.175%

b). 100 - ( 123/364 * 2.5%) = 99.1552 * 2500 = 247,888.04

Calculating based on 100 face value then multiplying by 2500 for the bond 250,000.

c) Rate of return = (247,888.04 - 245,000)/245,000 = 1.178%