You can purchase a T-bill that is 70 days from maturity for $17,465. The T-bill has a face value of $17,500. |
a. |
Calculate the T-bill’s quoted yield. (Use 360 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) |
T-bill’s quoted yield | % |
b. |
Calculate the T-bill’s bond equivalent yield. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) |
T-bill’s bond equivalent yield | % |
c. |
Calculate the T-bill’s EAR. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) |
T-bill’s EAR | % |
a. Calculate the T-bill’s quoted yield.
Quoted yield = D/F * 365/t
Where
D = dollar discount from face value = 17500-17465 = 35
F = face value = 17500
t = days until maturity (taking 360 days in a year) = 70
Quoted yield = (35/17500) * 365/70
= 1.043%
b. Calculate the T-bill’s bond equivalent yield.
bond equivalent yield= ((Par Value – Purchase Price) / Purchase Price) * (365 / Days to Maturity)
=((17500-17465)/17465)*(365/70)
= 1.045%
c. Calculate the T-bill’s EAR
EAR= (1+ bond equivalent yield/no. of compounding periods per year)^no. of compounding periods per year -1
=(1+0.01045/(365/70)^(365/70)-1
=1.00200410959^(365/70)-1
= 1.01049422465 - 1
= 1.049%
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