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19 December, 10:17

A $17,000 T-bill is purchased at a 2.75% discount rate for 20 weeks. Find the effective rate of interest to the nearest hundredth of a percent.

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  1. 19 December, 10:28
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    Note: 20 weeks = 20/52 or 5/13 of a year.

    Let E = effective rate of interest

    E = [1 + (r/m) ]^m - 1 where r is the nominal (annual) advertised rate; m is the number of compounding periods/year.

    Let r = 0.0275

    Let m = 5/13

    Plug into formula and do the math.
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