Question

A six-month $10,000 treasury bill is selling for $9,844. What is the annual yield ac-cording to the discount method? does this yield understate or overstate the true annual compound yield? Explain.

Answer 1

According to the given information,

We also have the following:

The formula for calculating the annual yield using the discount method is:

The annual yield using the discount methodis

The annualized compound yield is