Answer to Question #122463 in Macroeconomics for Jibi Babu

Question

Suppose the current interest rate is 5% what price should one expect to pay for a $1000 treasury bill, due to mature in one year, which ha originally been sold when interest rate was 10%?

Answer 1

The current price of the treasury bill is:

$P = Face Value*(1 + Premium Yield) = 1000*(1 + (0.1 - 0.05)) = 1050.$