A T-bill that is 275 days from maturity is selling for $96,010. The T-bill has a

Question

A T-bill that is 275 days from maturity is selling for $96,010. The T-bill has a face value of $100,000.

Calculate the discount yield, bond equivalent yield, and EAR on the T-bill. (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Calculate the discount yield, bond equivalent yield, and EAR on the T-bill if it matures in 350 days. (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 2 decimal places.(e.g., 32.16))

Calculate the discount yield, bond equivalent yield, and EAR on the T-bill. (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Answer:

a. Discount Yield = [(100000-96010)/100000]*360/275 =5.22%

Bond equivalent yield = [(100000-96010)/100000]*365/275 =5.30%

EAR = (1+i/n)^n-1 =

Where i =annual interest rate and n= number of computing period

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