Question

Sarcosuchus Corporation offers very short-term loans to applicants with low credit ratings. They charge an interest rate of 0.03333 percent per hour. a. If you borrow $100 from Sarcosuchus, how much will you owe in one week? b. If you borrow $100 from Sarcosuchus, how much will you owe in one month (30 days)? c. What annual rate is Sarcosuchus charging? Hint: Convert the simple hourly rate of 0.03333 percent into simple annual rate.

Treasury bills are short-term government bonds, which pay the lender a fixed amount of cash on the maturity date. Suppose Jen Franklin obtains a T-Bill that will pay her $1,000,000 in exactly 38 days from now. She purchased the T-Bill today for $995,555.55. a) Calculate the simple annual interest rate that Jen will earn if she holds the T-Bill until it matures. b) Calculate the bond equivalent yield that Jen will earn if she holds the T-Bill until it matures. Hint: bond equivalent yield is the same as annual rate, compounded semiannually

Answer 1

Rate of interest per hour is 0.03333%

So, for calculating Rate of interest for 1 week , we have to simply multiply hours in a week with Rate per hour as below:

Total Hours in a week : 24*7=168

Weekly ROI = 168*0.03333= 0.0559944%

So for $100, i will owe 0.056$

Similarly for a month (30 days) RoI will be = 24*30*0.03333%= 0.24%

so for $, i will owe $ 0.24

Finally annual Roi comes to 2.88% (0.24*12)

Treasury Bills:

Calculation of Simple annual interest:

T Bill purchase price $995,555.55

T Bill Maturity Value: $1000000.00

Difference : $4444.45 which is amount of gain by investing $995555.55 for 38 days

so the annual % for the price paid is (4444.45/995555.55*100)/38*365=4.29%