Question

Treasury bill purchased in December 2016 has 140 days until maturity and a bank discount yield of 1.87 percent. Assume a $100 face value.

**a.** What is the price of the bill as a
percentage of face value? **(Do not round intermediate
calculations. Round your answer to 3 decimal places.)**

**b.** What is the bond equivalent yield?
**(Do not round intermediate calculations. Enter your answer
as a percent rounded to 3 decimal places.)**

Answer #1

Answer a.

Discount Yield = [(Face Value - Current Price) / Face Value] *
[360 / Days to Maturity]

0.0187 = [($100 - Current Price) / $100] * [360 / 140]

0.00727 = ($100 - Current Price) / $100

$0.727 = $100 - Current Price

Current Price = $99.273

Price as a percentage = Current Price / Face Value

Price as a percentage = $99.273 / $100

Price as a percentage = 0.99273 or 99.273%

Answer b.

Bond Equivalent Yield = [(Face Value - Current Price) / Current
Price] * [365 / Days to Maturity]

Bond Equivalent Yield = [($100 - $99.273) / $99.273] * [365 /
140]

Bond Equivalent Yield = 0.007323 * 2.607143

Bond Equivalent Yield = 0.01909 or 1.909%

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intermediate calculations. Enter your answer as a percent rounded
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round intermediate calculations. Round your answer to 2 decimal
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b. What is its bond equivalent yield? (Use 365 days a year. Do
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#5
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