Question

10A)

An investor buys a T-bill at a bank discount quote of 6.30 with 120 days to maturity for 9,790.00. The bill has a face value of $10,000. The investor's bond equivalent yield on this investment is _____.

• 6.44%

• 6.52%

• 7.02%

• 6.35%

10B) A T-bill with face value $10,000 and 90 days to maturity is selling at a bank discount ask yield of 3.7%.

a. What is the price of the bill? b. What is its bond equivalent yield

Answer 1

10A)

Purchase price of T bill = $10,000*(1-(0.063*120/360)

= $10,000*0.979

= $9790

The investor's bond equivalent yield on this investment = ((face value/Purchase price)-1)*365/days to maturity

= ((10,000/9790)-1)*365/120

= 6.52%

10B)

a)Price of bill = Face value*(1-Discount ask yield for 90days)

Discount ask yield for 90days = Annual discount ask yield*(90/360)

= 3.7%*(90/360)

= 0.009250 (0.9250%)

Price of bill = $10,000*(1-0.009250)

Price of bill = $9907.50

b. What is its bond equivalent yield

bond equivalent yield = (face value - price) / price * (365 / 90)

bond equivalent yield = (10,000 - 9907.50) / 9907.50 * (365 / 90)

= 0.037864 (3.79%)