Jake Purchased a $100,000 182-Day T-Bill Discounted to Yield 5

question 109

Short Answer

Jake purchased a $100,000 182-day T-bill discounted to yield 5.5%. When he sold it 30 days later, yields had dropped to 5.0% simple interest. How much did Jake earn? (Taken from CIFP course materials.)

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Definitions:

Real Rates

Interest rates or rates of return that have been adjusted for inflation, showing the real purchasing power of the amount.

Nominal Rates

Interest rates or rates of return on investment that have not been adjusted for inflation, representing the face value of financial instruments.

Effective Rates

The actual interest rate that a borrower pays on a loan or receives on a deposit, taking into account the compounding of interest.

Coupon Rates

Coupon Rates are the annual interest rates paid by bond issuers on the bond's face value, distributed typically in semi-annual payments.