1. Compute the specified quantity. At auction, 9-month T-bills were sold at a di

Question

1. Compute the specified quantity.

At auction, 9-month T-bills were sold at a discount of 7.425%. What was the simple annual yield r? HINT [See Example 5.] (Round your answer to three decimal places.)
r =  %

2. Compute the specified quantity.

At auction, 4-month T-bills were sold at a discount of 5.520%. What was the simple annual yield r? HINT [See Example 5.] (Round your answer to three decimal places.)
r =  %

8. The following chart shows the monthly figures for Apple Computer, Inc. stock in 2010.

Explanation / Answer

Annual yield formula:

= (Discount / Face Value) x (360 / Time to maturity in days)

So

1. (7.425%) x (360 / 270) (assuming 30 days per month) = 9.9%

2. (5.52%) x (360 / 120) (assuming 30 days per month) = 16.56%

8. percentage return for 6 months (Feb to Aug) = (260.09 / 195.46) - 1 = 33.07%

So annual percentage return = (1 + (0.3307 /2)) 2 - 1 =  35.80%

7. Interest charged for 1 month = $4 = $4 / $84 = 4.76%

So annual effective interest at this monthly rate = [1 + 0.0476]12 -1 = 74.72%

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