The Wall Street Journal quotes 6.00% for the Treasury bill with a par value of $100,000 due two months from now. What is the effective annual yield on the bill?

• 6%
• 6.05%
• 6.15%
• 6.3%
• 6.5%

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

Solution: C

The qoutes yield is calculated as

[[math]] y=\frac{1}{t} \frac{F-P}{P} [[/math]]

where [math]t[/math] is in fraction of year, i.e. 1 / 6 in this example. Using [math]F=\$ 100,000[/math] the current price is $99,009. So the effective annual rate is [math]\left(\frac{\$ 100,000}{\$ 99,009}\right)^6-1=6.15 \%[/math]

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.