Question

Assume that 3-month Treasury bills totaling $23 billion were sold in $10,000 denominations at a discount rate of 5.200%. In addition, the Treasury Department sold 6-month bills totaling $21 billion at a discount rate of 5.145%. a. What is the discount amount for 3-month bills? (Do not round intermediate calculations. Round your final answer to the nearest cent.) Discount amount for 3-month bills $ b. What is the discount amount for 6-month bills? (Do not round intermediate calculations. Round your final answer to the nearest cent.) Discount amount for 6-month bills $ c. What is the effective rate for 3-month bills? (Do not round intermediate calculations. Round your final answer to the nearest hundredth percent.) Effective rate for 3-month bills % d. What is the effective rate for 6-month bills? (Do not round intermediate calculations. Round your final answer to the nearest hundredth percent.) Effective rate for 6-month bills

Answer 1

a)	Discount amount for 3 months bond
	Discount rate		=	5.2%*3/12=1.3%
	Discount amount		=	$ 23 b*1.3 %
			=	0.299 B
b)	Discount amount for 6 months bond
	Discount rate		=	5.145%*6/12=2.5725
	Discount amount		=	$ 21 b*2.5725%
			=	0.540225 B
c)	Effective rate for 3 month bond				=	{0.299B(23B-0.299B)}^12/3
					=	(0.299B/22.701B)^4
					=	0.01317^4
					=	0.05373 or 5.373%
d)	Effective rate for 6 month bond				=	{0.540225B(21B-0.540225B)}^12/6
					=	(0.540225B/20.459775B)^2
					=	0.02640^2
					=	0.05351 or 5.351%
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