Chapter 11 Assignment Example (for #2): Jane purchases a $10,000, 13-week Treasury Bill (T-Bill), for $9,750. What is Jane's effective rate (rounded to the nearest hundredth percent)? This problem requires you to interpret the given information correctly, which is done like this: Given: Face Value of the T-Bill = $10,000 Purchase Price of the T-Bill = $9,750 Time (T) = 13 weeks/52 weeks (there are 52 weeks in a year) Therefore: Interest = Face Value - Purchase Price This is similar to Interest = Maturity Value - Principal, from Chapter 10! Interest = $10,000 - $9,750 Interest = $250 The Effective Rate (ER) is the rate that is specific to Jane's Purchase Price, rather than that of the T-Bill itself, and is calculated like this: Effective Rate (ER) = Interest/(Purchase Price x Time) ER = $250/($9,750 x 13/52), where 13/52 = 1/4 = .25 ER = $250/($9,750 x .25) ER = $250/$2,437.50 ER = .10256 x 100% ER = 10.26% Answer: Jane's effective rate is 10.26%