Question

A U.S. Treasury Bill with 92 days to maturity is quoted at a discount yield of 2.37%.

a) Assuming a $100,000 face value, what dollar price would you pay for this bill?

b) What holding period yield will you earn?

c) What is the effective annual yield?

d) What is the bond equivalent yield?

Answer 1

a)

discount yield = 2.37%

un-annualised discount fo 92 days period = 0.0237 * (92/360)

dollar discount on face value = 100000 * 0.0237 * (92/360)

market price of bill = face value - dollar discount

= 100000 - 100000 * 0.0237 * (92/360)

= 99394.33

b)

holding period yield = (final price - initial price)/initial price

= (100000 - 99394.33)/99394.33

= 0.61%

c)

effective annual yield = (1+HPY)^(365/t) - 1

= (1+0.0061)^(365/92) - 1

= 2.44%

d)

bond equivalent yield = (365*discount yield) /(365 - maturity * discount yield)

= (365*0.0237)/(365 - 92*0.0237)

= 2.38%