Compute the specified quantity. Round all answers to the...

Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest $0.001 \%$, as appropriate. \mathrm{\{} T r e a s u r y ~ B i l l s ~ I n ~ D e c e m b e r ~ 2008 (in the midst of the finan- cial crisis) a $\$ 5,0006$ -month T-bill was selling at a discount rate of only $0.25 \% .{ }^{1}$ What was its simple annual yield?

Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest $0.001 \%$, as appropriate.
\mathrm{\{} T r e a s u r y ~ B i l l s ~ I n ~ D e c e m b e r ~ 2008 (in the midst of the finan-
cial crisis) a $\$ 5,0006$ -month T-bill was selling at a discount rate of only $0.25 \% .{ }^{1}$ What was its simple annual yield?

Key Concepts

Simple Annual Yield

The simple annual yield is a straightforward calculation that annualizes the return provided by an investment over a period shorter than one year. It is determined by dividing the gain (difference between face value and purchase price) by the purchase price, and then scaling that figure to an annual basis without compounding, which simplifies comparison with other annual interest rates.

Time Period Conversion

Time period conversion involves adjusting returns calculated over short periods (such as months or days) to reflect an annual rate. This conversion is crucial when comparing yields or interest rates across different investment durations and can be performed by multiplying the periodic return by the appropriate factor to represent a full year.

Discount Rate

The discount rate for financial instruments like treasury bills represents the percentage decrease from the face value at which the security is sold. It reflects the cost advantage for investors purchasing the instrument below its nominal value and is essential in determining the effective return or yield upon maturity.

Treasury Bills

Treasury bills are short?term debt instruments issued by governments to finance immediate cash needs. They are typically sold at a discount to their face value and do not pay periodic interest. Instead, the investor’s return is the difference between the purchase price and the face value paid at maturity.

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