Calculate the effective annual interest rate for (1) A 3-month T-bill selling at

Question

Calculate the effective annual interest rate for (1) A 3-month T-bill selling at $98,660 with par value $100,000. (2) A 15% coupon bond selling at par and paying coupons semiannually. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Calculate the effective annual interest rate for (1) A 3-month T-bill selling at $98,660 with par value $100,000. (2) A 15% coupon bond selling at par and paying coupons semiannually. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Effective annual rate on 3-month TBill=(100000/98660)^4-1=1.0135^4-1=0.055445=5.5445%

Effective annual interest rate on coupon bond paying 7.5% annually=1.075^2-1=0.1556=15.56%

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