Question

Which of the following provides the best return for an investor considering a 182-day investment? a....

Which of the following provides the best return for an investor considering a 182-day investment?

a. 7.50% yield quoted on an ACT/365 basis

b. 7.42% yield quoted on an ACT/360 basis

c. 7.21% discount rate quoted on an ACT/365 basis

d. 7.18% discount rate quoted on an ACT/360 basis

Homework Answers

Answer #1

Answer is Option b

ACT represents actual number of days = 182 days

a. 7.50% yield quoted on an ACT/365 basis

So yield for 182 days = 7.50% * (182/365) = 3.7397%

b. 7.50% yield quoted on an ACT/365 basis

So yield for 182 days = 7.50% * (182/365) = 3.7512%

c. 7.21% yield quoted on an ACT/365 basis

So yield for 182 days = 7.21% * (182/365) = 3.5951%

d. 7.18% yield quoted on an ACT/360 basis

So yield for 182 days = 7.18% * (182/360) = 3.6299%

Comparing all the 4 yields for 182 days, Option b has the maximum yield and hence that should be preferred

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