Explanation:
The price of 136-day Treasury bills is incorrectly calculated. The following is the formula used to calculate the cash price of Treasury bills:
Discount =
Discount = \left(\frac{136}{360}\right) \times 8 = \`3.02`$
Cash price = Face Value − Discount = $100 − `3.02` = \`96.97`$
The relationship between cash prices and quoted prices can be verified through the following formula:
Quoted Price =
=
= $8$
Q.688 Silvia Hank is the head of the fixed-income investment unit of a large investment bank in Malaysia. The human resources department has recently hired a junior analyst under supervision. The junior analyst has no experience in the investment industry, but he is a skilled statistician, which can be useful for conducting quantitative research. Hank instructed the analyst to calculate the cash prices of Treasury bills based on their quoted prices. However, she believes that the cash price and the quoted price that the junior analyst provided may be incorrect. Which of the following prices and quotes is/are incorrect?
I. The price of the 136-day Treasury bill which is quoted as 8 is $98
II. The price of a 90-day Treasury bill which is quoted as 13 is $96.75
A
The price of the 136-day Treasury bill is incorrectly calculated
B
The price of the 90-day Treasury bill is incorrectly calculated
C
The price of both the 136-day and the 90-day Treasury bills are incorrectly calculated
D
The price of both the 136-day and the 90-day Treasury bills are correctly calculated
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