a) What would it cost to buy a U.S. Treasury bill that pays $15,000 after 7 mont

Question

a) What would it cost to buy a U.S. Treasury bill that pays $15,000 after 7 months where the simple annual interest rate is 4.75%? (Round to the nearest cent.)

b) $1000 invested at simple 9% annual interest for 5 months will earn __________ interest. (Round to nearest cent.)

c) You are offered three investments. The first promises to earn 18% compounded annually, the second will earn 17.5% compounded quarterly, and the third will earn 17% compounded weekly. What is the best investment? Show work to justify your answer.

Explanation / Answer

a) What would it cost to buy a U.S. Treasury bill that pays $15,000 after 7 months where the simple annual interest rate is 4.75%? (Round to the nearest cent.)

cost to buy a U.S. Treasury bill = 15000/(1+ 0.0475*7/12) = $ 14,595.58

b) $1000 invested at simple 9% annual interest for 5 months will earn __________ interest. (Round to nearest cent.)

Interest = 1000*9%*5/12 = $ 37.50

c) You are offered three investments. The first promises to earn 18% compounded annually, the second will earn 17.5% compounded quarterly, and the third will earn 17% compounded weekly. What is the best investment? Show work to justify your answer.

The first promises to earn 18% compounded annually,

Effective Annual Interest Rate = 18%

the second will earn 17.5% compounded quarterly,

Effective Annual Interest Rate = (1+0.175/4)^4 - 1 = 18.68%

and the third will earn 17% compounded weekly.

Effective Annual Interest Rate = (1+0.17/52)^52 - 1 = 18.50%

What is the best investment?

The best investment is in the second will earn 17.5% compounded quarterly which will give highest return from the other option

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.