What is the discount yield, bond equivalent yield, and effective annual return o

Question

What is the discount yield, bond equivalent yield, and effective annual return on a $1 million Treasury bill that currently sells at 97 3/8 percent of its face value and is 70 days from maturity? (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 3 decimal places. (e.g., 32.161))

What is the discount yield, bond equivalent yield, and effective annual return on a $1 million Treasury bill that currently sells at 97 3/8 percent of its face value and is 70 days from maturity? (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 3 decimal places. (e.g., 32.161))

Explanation / Answer

Face value=1 million

Selling price=97.375

Time to Maturity=70 days

1.

Discount yield =[(Face value-Purchase Price)/ Face value)] x (365/days to maturity)

=((100-97.375)/100)*(365/70)= 13.688%

2.

Bond equivalent yield =[( Face value -Purchase Price)/ Purchase Price)] x (365/days to maturity)

=((100-97.375)/97.375)*(365/70)= 14.06%

3.

Effective annual return= EAY = (1 + HPY)^(365/t)

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