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FRM Part II · FRM Exam Part II · The Investment Function in Financial Services Management

A bank holds a zero-coupon Treasury bill with a face value of USD 10,000,000 maturing in 180 days. It was purchased at a discount yield of 4.00% using a 360-day year. What is the purchase price?

The purchase price is USD 9,800,000. A 4.00% bank discount yield over 180 days of a 360-day year gives a discount of USD 200,000 from the USD 10 million face value, so price equals face value less that discount.

  1. AUSD 9,800,000Correct
  2. BUSD 9,615,385
  3. CUSD 9,600,000
  4. DUSD 9,803,922

Explanation

Discount = face x d x t/360 = 10,000,000 x 0.04 x 180/360 = 200,000. Price = 10,000,000 - 200,000 = 9,800,000. The 9,803,922 figure wrongly treats 4% as a true yield (10,000,000/1.02), and 9,600,000 uses a full year of discount.

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