Question

2. What is the difference between a discount yield and a bond equivalent yield? Which yield is used for Treasury bill quotes?

11. What is the difference between a repurchase agreement and a reverse repurchase agreement?

18. Who are the major issuers of and investors in money market securities?

7. You can purchase a T-bill that is 95 days from maturity for $9,965. The T-bill has a face value of $10,000.

1. Calculate the T-bill’s quoted yield.

2. Calculate the T-bill’s bond equivalent yield.

3. Calculate the T-bill’s EAR.

Answer 1

I can only answer 1 question at a time, so I am answering question 2.

The measure of a bond's percentage return is referred to as Discount yield. Discount yield is most frequently used to calculate the yield on short-term bonds and treasury bills sold at a discount. Generally, This yield calculation uses a 30-day month and 360-day year to simplify calculations.
Bond Equivalent Yield (BEY) refers to the calculation for restating semi-annual, quarterly, or monthly discount-bond or note yields into an annual yield. The most important function of BEY is that it allows fixed-income securities whose payments are not annual to be compared with securities with annual yields. This yield calculation generally uses a 30-day month and 365-day year.

Yield to maturity yield calculation is used for treasury bill quotes.

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