CMA Study Group

Hendrix inc is interested in purchasing a100$US t bill and was presented with the following options     
              Due date          discount rate

option 1   180 days           6%
Option 2    360days          3.5%
Option 3    120days          8%
Option4       240days       4.5%

If hendrix wishes to buy the treasury bill at the lowest purchasing price ,which option should be chosen assuming a360 day year?
A.option 1
B.option2
C.option3
D.option 4

The correct answer is B  

but the discount rate presented for the duration to maturity not for the year 
so the purchase price for option 1 must be 100-6=94 but in that question it decleared that the purchase price is 97 not 94
On idea there is another question calculated the annualized rate is 12% not 6%
Please I want help with that question
thank you for your help in advance

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Mohamed Ahmed Abdel Mettal
Accountant
Oshena
Alexandria
Egypt
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Salam...

If you see option a its calculation can be understood in following manner

6% is annualized rate which must be calculated for 180 days time period which is due date. 6% / 360 * 180 days will give u percentage for 180 days which is 3% . Next step is to determine discounted amount which is 3% * 100=3 there fore for $100 after discount will be 100 -3=97

similarly calculations can be done for part b c and d . For part b percentage is already given for 360 days which is also due date.

i hope calculation is clear

-------------------------------------------
Mariam Adnan
Accountant
Manama
Bahrain
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Original Message:
Sent: 8/9/2014 5:21:53 PM
From: mohamed.ahmed2290@...
Subject: part2 question

Hendrix inc is interested in purchasing a100$US t bill and was presented with the following options                    Due date          discount rate option 1   180 days           6% Option 2    360days          3.5% Option 3    120days          8% Option4       240days       4.5% If hendrix wishes to buy the treasury bill at the lowest purchasing price ,which option should be chosen assuming a360 day year? A.option 1 B.option2 C.option3 D.option 4 The correct answer is B   but the discount rate presented for the duration to maturity not for the year  so the purchase price for option 1 must be 100-6=94 but in that question it decleared that the purchase price is 97 not 94 On idea there is another question calculated the annualized rate is 12% not 6% Please I want help with that question thank you for your help in advance ------------------------------------------- Mohamed Ahmed Abdel Mettal Accountant Oshena Alexandria Egypt -------------------------------------------