Question

If the 6 month T-bill is trading at a discount of 1.74 on August 19 th , and matures on February 12 th of the following year, what is the yield of the security?

Answer 1

Lets assume Face Value of Bond = $ 100

Current Price will be = $100 - $ 1.74 = $ 98.26

As it T Bill is trading at 1.74 % discount

Discount Rate is always applied at face value

Return of the T Bill = ( $ 1.74 / $98.26 ) * 100

= 1.771 %

Alternetively Return can be calculated on $ 100, but technical approach used above is more correct as investment amount is not $ 100 but $ 98.26

This return is for Period 19 August to 12th Feb of Following Year i.e 178 Days

(Date of Investment is included while calculating the same)

Annualised Return = 1.771% × (365/178)

= 3.632%