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CMA Intermediate · Financial Management and Business Data Analytics · Management of Cash and Cash Equivalents

Kaveri Industries buys a 91-day Treasury bill with face value ₹1,00,000 at ₹98,000 and holds it to maturity. Using a 365-day year, what is the annualised effective-yield on the investment, approximately (simple annualisation of the holding-period return on the price paid)?

The annualised yield is about 8.19%. The gain of ₹2,000 on a price of ₹98,000 is 2.04% for 91 days, and multiplying by 365/91 gives roughly 8.19%. Using face value as the base would understate the return at 8.03%.

  1. A8.19%Correct
  2. B8.03%
  3. C2.04%
  4. D2.00%

Explanation

Gain = 1,00,000 - 98,000 = ₹2,000. Return on price paid = 2,000/98,000 = 2.0408% for 91 days. Annualised = 2.0408% x 365/91 = 8.19%. Using face value as the base gives 8.03%, which is wrong because the investment is the price paid. The 2.04% and 2.00% options are not annualised.

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