Question

Assuming the interest rate is the same, is the purchase price of a 98-day $100,000 T...

Assuming the interest rate is the same, is the purchase price of a 98-day $100,000 T bill higher or lower than the price of a 168 day $100,000 T-bill?

Homework Answers

Answer #1

Answer:

Calculating the Purchase price of T-bill:

Step1: Multiply the Maturity days with the interest rate.

(Note: Let's assume interest rate as 10%)

98 days*10 ; 168 days*10

980 ; 1680

Step2: Divide the step1 value with 360

980÷360 ; 1680÷360

2.722 ; 4.667

Step3: Subtract the step2 value from 100. It gives the purchase price of the T-Bill.

100-2.722 ; 100-4.667

97.278 ; 95.334

Conclusion:

The Purchase price of 98 day T-Bill is $97,278,

and Purchase price of 168 day T-Bill is $95,334

Therefore, the purchase price of the 98-day $100,000 T-Bill is higher than the purchase price of 168-day $100,000 T-Bill.

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