Q2) (10 marks)

a) Give the formula for the annual simple discount rate d in terms of the annual simple interest rate r.

Use the daycount convention ACT/365.

b) On July 10, 2016 Vlad buys a T-bill maturing on Dec 18, 2016. The T-bill has a face value of $5000 and is discounted at the annual simple discount rate d = 4.50%. What price does he pay for the T-bill? (to 2 decimal places)

c) Walter pays the same price as Vlad, on the same day for a different T-bill with the same face value and a maturity date of Dec 11, 2016. What is the simple annual discount rate for Walters investment? (to 2 decimal places; e.g. 3.06%)