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A sterling T-bill with £10,000,000 face value is issued for 91 days and will be redeemed...

A sterling T-bill with £10,000,000 face value is issued for 91 days and will be redeemed on maturity at £10,000,000. Suppose the 3-month yield at the time of issue is 5.25%. What is the price of the bill at issue ?

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Answer #1
Yield = (Discount value/Bond price)*(365/number of days to maturity)
So, 0.0525 = (DV/Price)*365/91
0.0525*91/365 = DV/Price = 1.31% 1.31%
0.0131 = DV/(10000000-DV)
10000000*0.0131 = DV+0.0131DV
DV = 10000000*0.0131/1.0131 $              1,29,306
Price of the bond on issue = 10000000-129306 = $           98,70,694
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