business math

Question

what would be the purchase price for a $5,000, 91-day T-bill paying 3% interest a) $4,925.00 b) $4,962.50 c) $5,000.00 d$5,037.50

Answer 1

the underlying formula that you want to use to solve this one is

Purchase Price = Face Value x (1 - (Interest Rate x Days to Maturity/360))

for this set of values that becomes

Purchase Price = 5000 x (1 - 0.03 x 91/360))

Purchase Price = 5000 x 0.9924166

Purchase Price = 4962.08

meaning that the purchase price for a $5000, 91-day T-bill with a 3% interest rate is $4,962.08

Answer 2

P = Po(1+r/n)^nt

P = 5000(1+.03/4)^4(1/4) = 5000(1.0075) = $5037.50

option d