a) What would it cost to buy a U.S. Treasury bill that pays $15,000 after 7 mont
ID: 2659652 • Letter: A
Question
a) What would it cost to buy a U.S. Treasury bill that pays $15,000 after 7 months where the simple annual interest rate is 4.75%? (Round to the nearest cent.)
b) $1000 invested at simple 9% annual interest for 5 months will earn __________ interest. (Round to nearest cent.)
c) You are offered three investments. The first promises to earn 18% compounded annually, the second will earn 17.5% compounded quarterly, and the third will earn 17% compounded weekly. What is the best investment? Show work to justify your answer.
Explanation / Answer
a) What would it cost to buy a U.S. Treasury bill that pays $15,000 after 7 months where the simple annual interest rate is 4.75%? (Round to the nearest cent.)
cost to buy a U.S. Treasury bill = 15000/(1+ 0.0475*7/12) = $ 14,595.58
b) $1000 invested at simple 9% annual interest for 5 months will earn __________ interest. (Round to nearest cent.)
Interest = 1000*9%*5/12 = $ 37.50
c) You are offered three investments. The first promises to earn 18% compounded annually, the second will earn 17.5% compounded quarterly, and the third will earn 17% compounded weekly. What is the best investment? Show work to justify your answer.
The first promises to earn 18% compounded annually,
Effective Annual Interest Rate = 18%
the second will earn 17.5% compounded quarterly,
Effective Annual Interest Rate = (1+0.175/4)^4 - 1 = 18.68%
and the third will earn 17% compounded weekly.
Effective Annual Interest Rate = (1+0.17/52)^52 - 1 = 18.50%
What is the best investment?
The best investment is in the second will earn 17.5% compounded quarterly which will give highest return from the other option
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.