Question

A T-Bill with a face value of $25000, and 90 days left to maturity is purchased...

A T-Bill with a face value of $25000, and 90 days left to maturity is purchased today at a yield of 5.9% to the buyer. Assume that after 20 days the T-bill is sold by the initial buyer to yield him a holding period rate of 8.6%. (a) What is the purchase price of the T-bill today? Express answer to 2 decimal places without the $ sign or commas. (b) For what price was the T-Bill resold after the purchase in part (a). Express your answer to 2 decimal places without the $ sign or comma

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Homework Answers

Answer #1

Answer (a)

Purchase Price of the T-bill Today

Price of T-bill = Face value x [1 - (discount yield * days until maturity/360)]

= $25000 x [1 - (0.059 * 90/360)]

= $25000 x [1 - 0.01475]

= $24,631.25

Therefore, Purchase Price of the T-bill today = 24631.25

Answer (b)

Price at which the T-Bill was resold:

Holding Period Return = (Selling Price - Purchase Price) / Purchase Price

0.086 = (Selling Price - 24631.25) / 24631.25

Selling Price - 24631.25 = 2118.2875

Selling Price = $26,749.54

Therefore, the T-bill was resold at the price = 26749.54

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