1. Assume a $1,000 Treasury bill is quoted to pay 5 percent interest over a six-month period.

a.         How much interest would the investor receive?

            The investor would receive $24.99 or $25.00 if rounded up on their investment

b.         What will be the price of the Treasury bill?

            The price of the Treasury bill is at $951.81

c.         What will be the effective yield?

            The effective yield based off of six months’ pay would be 5.06%

  • The price of a Treasury strip note or bond can be found using Appendix C toward the back of the text. It is simply the present value factor from the table times the maturity (par) value of the Treasury strip. Assume you are considering a $10,000 par value Treasury strip that matures in 25 years. The discount rate is 7 percent. What is the price (present value) of the investment?

Future Value (FV) = $10,000; Return (R) = 7%; N 25. Present Value (PV) = 1,842.49

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