Question

What is the minimum discount rate you will accept if you want to earn at least a 0.25% annualized investment rate on a 182 day $1,000 T-bill?

Why do we use these two different measures?

What is the Treasury Department’s role in the money markets?

Answer 1

yeild=((100-price)/price)*100

annualized return= yeild*(365/days of maturity)

so here annualized return =0.25%

days of maturity=182 days

putting all the values in equation (2) we get,

0.25= yeild*365/182

yeild=0.1246

putting the value of yield in equation (1) we get,

Price=99.875(pp)

The formula to calculate discount yield is [(FV - PP)/FV] * [360/M].

putting the values from above we get,

[(1000-99.875)/99.875]*[360/182]

the discount rate will come as 18.0745

TREASURY BILLS: these are the short terms of government bonds whose maturity is less than 1 year and is issued by the treasury department.

role of treasury department: Credit Rating Agency Relations, responsible for creating risk management strategies, maximum return on investment, matching the maturity dates of investments, not putting funds at risk, working capital management etc.