Question

What is the discount yield, bond equivalent yield, and effective annual return on a $5 million Treasury bill that currently sells at 94.875 percent of its face value and is 88 days from maturity? (LG 5-1)

Answer #1

Discount yield = (Par value - Purchase price) / Par Value
*360/Days to maturity

Purchase price = $5,000,000 * 94.875% = $4,743,750

Discount yield = ($5,000,000 - $4,743,750) / $5,000,000 * 360 /
88

= $256,250 / $5,000,000 * 360 /88 = 0.2096 or 20.96%

Bond Equivalent yield = (Par value – Purchase Price)/Purchase
Price × (365/Days to maturity)

= ($256,250 / $4,743,750) * (365/88)

= 0.2240 or 22.41%

Effective annual return = (1+ (Par – Price)/Price)^ (365/n) -
1

= (1+ $256,250 / $4,743,750) ^ (365/88) - 1

= 0.2438 or 24.38%

What is the discount yield, bond equivalent yield, and effective
annual return on a $1 million T-bill that currently sells at 95.375
percent of its face value and is 70 days from maturity?
(Use 360 days for discount yield and 365 days in a year for
bond equivalent yield and effective annual return. Do not round
intermediate calculations. Round your answers to 3 decimal
places. (e.g., 32.161))

1-
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annual return on a $1 million T-bill that currently sells at 96.375
percent of its face value and is 75 days from maturity?
(Use 360 days for discount yield and 365 days in a year for
bond equivalent yield and effective annual return. Do not round
intermediate calculations. Round your answers to 3 decimal
places. (e.g., 32.161))
Discount
yield
%
Bond
equivalent yield
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Effective annual return
%...

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suppose a 90-day treasury bill has a bank discount yield of 7
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