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

The Treasury Department auctioned $10 billion in 3-month bills in denominations of $10,000 at a discount rate of 3.000%. What would be the effective rate of interest?

Expert Solution

Discount rate = 3%

Effective Interest Rate = [ 1 + (Nominal Interest Rate / Number of Compounding Periods) ] ^ (Number of compounding periods) - 1]

Compounding period will be quarterly as bills are for 3 months. Hence number of compounding periods = 4.

Effective Interest Rate = [ 1 + (3%/4) ] ^ (4) - 1

Effective Interest Rate = 1.0075 ^ 4 - 1

Effective Interest Rate = 1.030339 - 1

Effective Interest Rate = 3.0339%

jeff jeffy answered 2 years ago

Assume that 3-month Treasury bills totaling $18 billion were sold in $10,000 denominations at a discount...

Assume that 3-month Treasury bills totaling $18 billion were sold in $10,000 denominations at a discount rate of 4.600%. In addition, the Treasury Department sold 6-month bills totaling $16 billion at a discount rate of 4.545%. a. What is the discount amount for 3-month bills? (Do not round intermediate calculations. Round your final answer to the nearest cent.) b. What is the discount amount for 6-month bills? (Do not round intermediate calculations. Round your final answer to the nearest cent.)...

ssume that 3-month Treasury bills totaling $13 billion were sold in $10,000 denominations at a discount...

ssume that 3-month Treasury bills totaling $13 billion were sold in $10,000 denominations at a discount rate of 3.650%. In addition, the Treasury Department sold 6-month bills totaling $11 billion at a discount rate of 3.595%. 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...

Treasury wants to issue $30 billion of 180-day Treasury bills. There are $5 billion of noncompetitive...

Treasury wants to issue $30 billion of 180-day Treasury bills. There are $5 billion of noncompetitive bids and $64 billion of competitive bids. The competitive bids are as follows: $13 billion at 2.75%; $11 billion at 3.50%; $10 billion at 4.00%; $9 billion at 3.25%; $8 billion at 3.00%; $7 billion at 3.75%; and $6 billion at 2.50%. (a) What will be the highest return/rate accepted and paid to all successful bidders? (b) What would be the bond-equivalent yield (investment...

Discount Bonds Discount bonds such as Treasury bills have no stated interest rate. They are sold...

Discount Bonds Discount bonds such as Treasury bills have no stated interest rate. They are sold at a discount from face value, F. The yield or nominal interest rate is the percentage increase above the purchase price, P. The yield, i, is found as i = ((F – P)/P) * 100 You multiply by 100 to convert the decimal to a percentage. An example: Assume F = 1000 and P = 950 for a 1-year discount bond. Its yield...

Variable rate CD’s = $90 Treasury bills = $150 Discount Loans = $20 Treasury notes =...

Variable rate CD’s = $90 Treasury bills = $150 Discount Loans = $20 Treasury notes = $100 Fixed rate CDs = $160 Money Market deposit accts. = $140 Savings deposits = $90 Fed Funds borrowing = $40 Variable rate mortgage loans $140 Demand Deposits = $40 Primary Reserves = $50 Fixed rate loans = $210 Fed Funds Lending = $50 Equity Capital = $120 A. Develop a balance sheet from the above data. Be sure to divide your balance sheet...

Department of Treasury auctioned a 20-year bond in August. Its coupon rate was 1.125% and similar...

Department of Treasury auctioned a 20-year bond in August. Its coupon rate was 1.125% and similar bonds yield at 1.213%. What should the price be?

Question: An ATM can only dispense bills of the following denominations: $500, $100, $50, $10, $5,...

Question: An ATM can only dispense bills of the following denominations: $500, $100, $50, $10, $5, and $1 When a user withdraws an amount from the ATM, the machine tries to dispense the amount using the least number of bills possible. For instance, if the user requests $1234, the ATM dispenses 2 bills of $500 + 2 bills of $100 + 3 bills of $10 + 4 bills of $1. On the other hand, if the user requests $1235, the...

Why are Treasury bills called “discount” securities? Briefly explain. What are the major difference between money...

Why are Treasury bills called “discount” securities? Briefly explain. What are the major difference between money market securities and capital market securities? Briefly describe. When the stock market goes into a panic mode, investors run to Treasury market. Why? Justify the phenomena called “flight to quality.” Look up chapter 3 and google it. Read the article about Mark Cuban Jr. from my class web site under chapter 3. Describe what option strategy he used to hedge exposure of Yahoo stocks....

The U.S. Department of the Treasury recently donated $5 billion in cash foreign aid to several...

The U.S. Department of the Treasury recently donated $5 billion in cash foreign aid to several Carribbean island nations that were hard hit by deadly hurricanes both last year and this year. The U.S. Treasury Department made it clear that this humanitarian aid donation does not need to be repaid to the U.S. and those Carribbean governments can use the money for whatever they think was necessary. Conclusion: This type of government spending directly stimulates the U.S. GDP according to...

4. The following is excerpted form an article about a U.S. Treasury auction of one-month bills...

4. The following is excerpted form an article about a U.S. Treasury auction of one-month bills that resulted in a zero-percent yield. When was the last time you invested in something that you knew wouldn’t make money? In the market equivalent of shoveling cash under the mattress, hordes of buyers were so eager on Tuesday to park money in the world’s safest investment, United States government debt, they agreed to accept a zero-percent rate of return. The news sent a...

Question