Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

You pay $9,850 for a 180-day Treasury bill (T-bill) with a face value of $10,000. What is the annualized discount rate (using a 360-day year) for this T-bill?

3.00\%

2.96\%

2.50\%

3.06\%

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Verified step by step guidance

Step 1: Understand the problem. The goal is to calculate the annualized discount rate for a Treasury bill (T-bill) using a 360-day year. The discount rate is based on the difference between the face value and the purchase price, annualized to reflect a full year.

Step 2: Calculate the discount amount. The discount amount is the difference between the face value and the purchase price of the T-bill. Use the formula: Discount Amount = Face Value - Purchase Price. In this case, the face value is $10,000 and the purchase price is $9,850.

Step 3: Determine the discount rate for the 180-day period. The formula for the discount rate is: Discount Rate = (Discount Amount / Face Value) × 100. This gives the percentage discount for the 180-day period.

Step 4: Annualize the discount rate. Since the T-bill is for 180 days and the year is considered to have 360 days, the annualized discount rate is calculated by multiplying the 180-day discount rate by (360 / 180). The formula is: Annualized Discount Rate = Discount Rate × (360 / 180).

Step 5: Compare the calculated annualized discount rate to the given options (3.00%, 2.96%, 2.50%, and 3.06%) to identify the correct answer.