Question

A T-bill with face value $10,000 and 95 days to maturity is selling at a bank discount ask yield of 4.2%.

a. What is the price of the bill? (Use 360 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What is its bond equivalent yield? (Use 365 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places.) Bond equivalent yield %

Answer 1

Bank disount yield = [( face value - price) / face value] * 360 / n

0.042 = [( 10,000 - price) / 10,000] * 360 / 95

0.042 = [( 10,000 - price) / 10,000] * 3.789474

0.011083 = ( 10,000 - price) / 10,000

110.833324 = 10,000 - price

T-bill price = $9,889.17

b)

Bond equivalent yield = [(Face Value – T-bill Price)/T-bill Price] x (365/95)

Bond equivalent yield =[( 10,000 - 9,889.17) / 9,889.17] * 3.842105

Bond equivalent yield = 0.011207 * 3.842105

Bond equivalent yield = 0.043059 or 4.31%