CMA Intermediate · Financial Management and Business Data Analytics · Money Market
Aarav Traders buys a 91-day Treasury Bill with face value Rs 1,00,000 at a price of Rs 98,200. Using a 365-day year, the annualised effective yield on the investment (to the nearest 0.01%) is approximately:
The yield is 7.35% a year. The gain of Rs 1,800 on a cost of Rs 98,200 is 1.833% for 91 days, and multiplying by 365/91 annualises it. Using the face value as the base would wrongly give 7.22%.
- A7.35%Correct
- B7.22%
- C1.83%
- D1.80%
Explanation
Gain = 100000 - 98200 = 1,800. Yield on investment = 1800/98200 = 1.833% for 91 days. Annualised = 1.833% x 365/91 = 7.35%. Using face value as base gives 1.8% x 365/91 = 7.22%, which is the wrong base. The 1.83% and 1.80% options are unannualised.
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