If a company sells (discounts)a bank bill with a face value of $500 000,a term to maturity of 120 days,and a yield of 8.45% per annum,how much will the company raise on the issue? (Ignore transaction fees.)
A) $391 295.03
B) $445 312.02
C) $486 485.05
D) $486 302.48

Question

Quizplus · Accepted Answer

The formula to calculate the amount raised on a discounted bank bill is as follows:

Amount raised = Face value * (1 - Discount rate * Time to maturity/360)

Plugging in the given values, we get:

Amount raised = $500,000 * (1 - 0.0845*120/360) = $486,485.05

Therefore, the best choice is C, which is the closest option to the calculated amount.

If a Company Sells (Discounts)a Bank Bill with a Face