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

Eduardo Carter

12 August, 08:13

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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Natalee Bernard · 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.)