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Treasury Securities: Nevada Company has bought T-bills with face amount $5.45 million, with a discount of...

Treasury Securities: Nevada Company has bought T-bills with face amount $5.45 million, with a discount of 4.73%, and time to maturity 73 days. Find its bond equivalent yield, and its yield as a zero coupon bond.

Answers - 4.84%, 4.94% ♥

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Answer #1

Information provided:

Face value= $5.45 million

Discount rate= 4.73%

Time= 73 days

Discounted price= Face value - Discount

= $5,450,000 - ($5,450,000*0.0473*(73/360))

= $5,450,000 - $52,273.07

= $5,397,726.93   $5,397,727.

Bond equivalent yield= (365*0.0473)/(360- 73*0.0473)

= 17.2645/ 13.5751

= 0.0484*100

= 4.84%.

Yield as a zero coupon bond:

Face value= Present value (1 + yield)*time

$5,450,000= $5,397,727(1 + r)*73/365

$5,450,000/ $5,397,727= (1 + r)*(73/365)

1.0097= (1 + r)* (73/365)

(1 +r)= 1.0494

r= 1.0494 - 1

= 0.0494*100

= 4.94%.

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