Economics - Rate of return & Yield Rate

[Larrytsai]

You are considering purchasing a 274 day treasury bill that has a maturity value of 100000, The yield rate of interest on the 274 day treasury bills is 5.48%.

Suppose you paid 96050 for a 274 day treasury bill with a 100000 maturity value and you sold it 150 days later for 98190.81. Calculate the rate of return you received on the treasury bill and find the yield rate of interest the buyer will receive on the treasury bill.

Calculations:

0 = -96050 + 98190.81(1+i)^(-150)
solve for i
i=0.01469%

I got this as my rate of return, however I am confused as to what the yield rate of interest is?

 

[nate808]

The yield rate of interest is the annualized rate of return that the buyer will receive on the treasury bill. In this case, since the treasury bill has a maturity of 274 days, we need to annualize the rate of return to find the yield rate of interest.

To annualize the rate of return, we use the following formula:

Annualized rate of return = [(1 + rate of return)^(365/number of days held)] - 1

Substituting the values from the given information, we get:

Annualized rate of return = [(1 + 0.01469)^(365/150)] - 1
= 0.0356 or 3.56%

Therefore, the yield rate of interest that the buyer will receive on the treasury bill is 3.56%. This means that the buyer will earn a 3.56% return on their investment over the course of one year.