Answered: The Treasury Department auctioned $34…

The Treasury Department auctioned $34 billion in 3-month bills in denominations of $10,000 at a discount rate of 6.450%. What would be the effective rate of interest?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 4P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

The Treasury Department auctioned $34 billion in 3-month bills in denominations of $10,000 at a discount rate of 6.450%.

What would be the effective rate of interest?

Note: Use calendar year. Do not round intermediate calculations. Round your answer to the nearest hundredth percent.

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