Question

How would you find excess return using current four week tbill rates?

Answer 1

Excess returns are returns in excess of treasury bill rates (or risk free rates). In other words the returns an investor can earn by taking some risk, such returns will yield him returns above the risk free rates (t-bill rates) because investors are risk averse and wants to get compensated with excess returns for the risk taken.

Ans: Lets say a US four week Treasury bill (or 4-week t-bill) is yielding 4%, and at the same time a similar corporate bond provides a return of 5.5%.

The excess return on the corporate bond is 1.5% (5.5 - 4.0).