CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

A Treasury bill with 50 days till maturity is quoted with a bank discount rate of 3.50%. An investor purchasing $2,000,000 face value of this Treasury bill would earn an effective annual return of ______.

A. 3.6213%
B. 3.5171%
C. 3.5000%
Correct Answer: A

F = $2,000,000
D = 0.035*(50/360)*$2,000,000 = $9,722.22
P = $2,000,000 - $9,722.22 = $1,990,277.78
EAY = (1 + $9722.22/1990277.78)365/50 - 1 = 3.6213%

User Contributed Comments 8

User Comment
stefdunk anyone know a shortcut for this?
stefdunk 360 x 0.035 / (360 - (50 x 0.035))= 0.035171

0.035171 x (50/360) + 1 yx (365/50) -1 = 0.036213

this brings it from bank rate to moneymarket yield to EAY
limpus Combining the formula gives:
EAY = (1 + (360/(t x rBD) - 1))^(365/t) - 1
0is4eva Calculate F - D = 1,990,277
HPY = 2,000,000 / 1,990,278 = 1.00488 over 50 days.
EAY = (1+HPY)^(365/t) = 1.00488^(365/50) = 1.036213
Correct answer is A, 3.6213%
bidisha i am learning a lot from these examples
sgossett86 Agreed.
I'm learning a lot in terms of getting comfortable & gaining confidence with the BAII+, storing, using new functions, inputting lengthy problems with parenthesis, etc. Along with applying and memorizing the formulas because when the test comes, yeah you need to know the formulas, but you need to be confident in your calculator outputs the first time. Having to re-enter, or not be confident with outputs costs a lot of time.
sgossett86 I've got the TI BAII+ guidebook open on the other window for references as needed.
jmliguori You can do this one logically based on the last q. The eff ann yield has to be greater than the HPY of 3.517%.
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