Question

You can purchase a T-bill that is 68 days from maturity for $17,965. The T-bill has a face value of $18,000.

a. Calculate the T-bill’s quoted yield. (Use 360 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))
b. Calculate the T-bill’s bond equivalent yield. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))
c. Calculate the T-bill’s EAR. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

a.T-bill's quoted yield%

b.T-bill's bond equivalent yield%

c.T-bill's EAR%

Answer 1

A)

Quoted yield= (1-(Purchase Price/Face price))*(360/year to mature)

=(1-(17965/18000)*(360/68)

=1.029%

B)

Tbill Equivalent yield =(1-(Purchase price/Face price))*(365/years to maturity)

=(1-(17965/18000)*(365/68))

=1.044%

C)

Tbill EAR = [(1+ Equivalent yield/(365/years to maturity))]^(365/years to maturity)-1

=[(1+ (1.044%/(365/68))]^(365/68)-1

EAR= 1.048%

Note: Each caluclation was done in excel. So to avoid intermediate roundings errors, i havent displayed them.