You can buy a Treasurybill for 9875 and in three months the

You can buy a Treasury-bill for $98.75, and in three months the T-bill pays you $100.

What is the 3-month Nominal Risk Free Rate?

Express your answer as a percentage, for example 3.18% should be entered as 3.18 without the percentage sign.

Solution

ANNUAL YIELD ON TREASURY BILL =

(FACE VALUE- ISSUE PRICE)/ FACE VALUE * (360/NO OF DAYS TO MATURITY)

ANNUAL YIELD ON TREASURY BILL = (100 -98.75)/100*(360/90) = 5% ANNUAL RATE

SO NOMINAL RISK FREE RATE FOR 3 MONTHS = 5%/4 = 1.25%

ANSWER : 1.25

SO