The Treasury Department auctioned $15 billion in 3-month bills in denominations of $10,000 at a discount rate of 3.750%.

What would be the effective rate of interest? (Use calendar year. Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)

Question

Mathematics

Todd Turner

5 October, 23:32

The Treasury Department auctioned $15 billion in 3-month bills in denominations of $10,000 at a discount rate of 3.750%.

What would be the effective rate of interest? (Use calendar year. Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)

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Answers (1)

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Ronan · Answer 1

A useful formula for finding the effective rate on discounted notes is

... (effective rate) = r / (1 - rt)

For t = (3 months) / (12 months) = 1/4, the effective rate on these bills is

... (effective rate) = 3.75% / (1 - 0.03750*0.25) ≈ 3.79%

The Treasury Department auctioned $15 billion in 3-month bills in denominations of $10,000 at a discount rate of 3.750%.What would be the effective rate of interest? (Use calendar year. Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)

The Treasury Department auctioned $15 billion in 3-month bills in denominations of $10,000 at a discount rate of 3.750%.

What would be the effective rate of interest? (Use calendar year. Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)