Question

The price of a 180-day treasury bill is quoted as 5.00. what continuously compounded return does an investor earn on the treasury bill for the 180-day period on an actual/365 basis?

a. 5.0000%
b. 5.0694%
c. 5.1339%

Answer 1

The continuously compounded return on a 180-day treasury bill can be calculated using the formula: Return = ln(PV/FV) * (365/t). Using the given information, PV = 5.00 and FV = 100, the continuously compounded return is approximately 5.1339%.

Step-by-step explanation:

The continuously compounded return on a 180-day treasury bill can be calculated using the formula:

Return = ln(PV/FV) * (365/t)

Where:

PV = Current price of the treasury bill

FV = Face value of the treasury bill

t = Time period in days

Using the given information, PV = 5.00 and FV = 100, the formula becomes:

Return = ln(5/100) * (365/180)

Calculating this, we get a continuously compounded return of approximately 5.1339%, which makes option c the correct answer.