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Calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of the Treasury bill (T-bill) purchase. Round effective interest rate to the nearest hundredth of a percent. Face Discount Term Purchase Effective Interest Value Rate (%) (weeks) Price Rate (%) $80,000 4.20 26 2$ $ %

Calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of the Treasury bill (T-bill) purchase. Round effective interest rate to the nearest hundredth of a percent. Face Discount Term Purchase Effective Interest Value Rate (%) (weeks) Price Rate (%) $80,000 4.20 26 2$ $ %

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of the Treasury bill (T-bill) purchase. Round effective interest rate to the nearest hundredth of a percent. Face Discount Term Purchase Effective Interest Value Rate (%) (weeks) Price Rate (%) $80,000 4.20 26 $ 2$
Transcribed Image Text:Calculate the interest (in $), purchase price (in $), and effective interest rate (as a %) of the Treasury bill (T-bill) purchase. Round effective interest rate to the nearest hundredth of a percent. Face Discount Term Purchase Effective Interest Value Rate (%) (weeks) Price Rate (%) $80,000 4.20 26 $ 2$
Expert Solution
Step 1

Working:

The face value = $80,000

The discount rate = 4.20%

The term = 26 weeks.

Bank discount = Face value × discount rate × time

Face value = $80,000Discount rate = 4.20100 = 0.0420

Time = number of weeks of a loan52 = 2652 = 12

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