Question

A U.S. Treasury bill with 64 days to maturity is quoted at a discount yield of 1.75 percent. Assume a $1 million face value. What is the bond equivalent yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places.)

Bond equivalent yield

%

Answer 1

Face Value of Treasury Bill = $1,000,000

Discount Yield = 1.75%

Calculating the Price of Treasury Bill:-

Price = Face value*[1- (% of Yield)*Number of days/360]

Price = $1,000,000*[1-(0.0175*64/360)]

Price = $1,000,000*0.9968888889

Price of T-Bill = $996,888.89

- Bond Equivalent Yield = [(Face value - Price)/Face Value]*365/Number of days

Bond Equivalent Yield =[($1,000,000 - $996,888.89)/$1,000,000]*365/64

Bond Equivalent Yield = 1.774%

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