A T bill has an annual percentage rate (APR) of 0 24 based on the ask price The maturity of the bill is 30 days (a) Find the ask price (for $100 face value) of the T bill (b) If you wish to invest a par value (or face value) of $75,000, how much do you have to pay 2 Consider the following two T bills (both prices are for $10,000 face value) (1) A 3 month bill selling at $9,901 (2) A 6 month bill selling at $9,804 (a) Calculate the annual percentage rate for each T bill above (b) Which security oers a higher eective annual rate and why Banks oer CDs (certiOcates of deposit) for their customers Conventional CDs are time deposits that promise a Oxed interest rate However if a customer cashes out her CD before the CD matures, then the bank imposes a penalty on the customer Suppose you have $10,000 You are considering buying a 3 month CD with this $10,000 Bank A is oering a 3 APR on its 3 month CD and Bank B is oering a 3 EAR on its 3 month CD Suppose all other aspects of these two banks are the same with regard to their 3 month CDs, which bank would you buy your CD from Why By the time your CD matures, how much money would you get back when you cash out your CD when it matures Four years ago, you invested $10,000 in stock ABC For the four years you have invested in this stock, you did not adjust your position The following table represents the actual annual returns of the stock over the past four years Years Actual Annual Return 2013 10 2014 25 2015 20 2016 10 (a) Compute both the arithmetic average annual return and the geometric average annual return of ABC stock over the past four years (b) How much is your ABC stock holding worth at the end of 2016 (c) Which average annual return (arithmetic or geometric) better reects your actual performance over the past four years

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A T-bill has an annual percentage rate (APR) of 0.24% based on the ask price. The maturity of the bill is 30 days.

(a) Find the ask price (for $100 face value) of the T-bill. (b) If you wish to invest a par value (or face value) of $75,000, how much

do you have to pay? 2. Consider the following two T-bills (both prices are for $10,000 face value)?

(1) A 3-month bill selling at $9,901

(2) A 6-month bill selling at $9,804 (a) Calculate the annual percentage rate for each T-bill above.

(b) Which security oers a higher eective annual rate and why?

Banks oer CDs (certiOcates of deposit) for their customers. Conventional CDs are time deposits that promise a Oxed interest rate. However if a customer cashes out her CD before the CD matures, then the bank imposes a penalty on the customer. Suppose you have $10,000. You are considering buying a 3-month CD with this $10,000. Bank A is oering a 3% APR on its 3-month CD and Bank B is oering a 3% EAR on its 3-month CD. Suppose all other aspects of these two banks are the same with regard to their 3-month CDs, which bank would you buy your CD from? Why? By the time your CD matures, how much money would you get back when you cash out your CD when it matures.
Four years ago, you invested $10,000 in stock ABC. For the four years you have invested in this stock, you did not adjust your position. The following table represents the actual annual returns of the stock over the past four years.

Years Actual Annual Return

2013. -10%

2014. -25%

2015. -20%

2016. -10%

(a) Compute both the arithmetic average annual return and the geometric average annual return of ABC stock over the past four years.

(b) How much is your ABC stock holding worth at the end of 2016?

(c) Which average annual return (arithmetic or geometric) better reects

your actual performance over the past four years?