Skip to content

CMA Intermediate · Financial Management and Business Data Analytics · Money Market

A mutual fund analyst compares a 91-day Treasury Bill with a 91-day Certificate of Deposit. The T-bill, face value Rs 100, is issued at Rs 98.50. Using a 365-day year, the annualised yield (simple, on issue price) is closest to:

The annualised yield is about 6.11%. The bill earns Rs 1.50 on an issue price of Rs 98.50, a 1.5228% return over 91 days, which scaled by 365/91 gives roughly 6.11%. Dividing by face value would wrongly give 6.02%, and not annualising gives 1.52%.

  1. A6.11%Correct
  2. B1.52%
  3. C6.02%
  4. D1.50%

Explanation

Discount is 100 - 98.50 = 1.50. Return for the period = 1.50/98.50 = 1.5228%. Annualised = 1.5228% x 365/91 = 6.108%, about 6.11%. Using face value as base gives 6.02%, a wrong base; 1.52% is not annualised.

Did you get it right without looking?

One question tells you little. A timed set on Money Market shows your real accuracy, how long you take and where you lose marks.

Practise Money MarketFree diagnostic mock

More Money Market questions