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%

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