You can purchase a T-bill that is 65 days from maturity for $18,465. The T-bill

Question

You can purchase a T-bill that is 65 days from maturity for $18,465. The T-bill has a face value of $18,500.

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))

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))

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))

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))

Explanation / Answer

Quoted yield = (Face Value - Purchase price)/Face value * 360/No of days to maturity = ($18500-$18465)/$18500 * 360/65 = 35/18500 *(360/65)= 1.048% T Bill's bond equivalent yield - using 365 days instead of 360 T Bill's BEY = ((Par Value/Price)- 1)(365/days left to maturity)                        = ((18500/18465)- 1)(365/65) 0.01064384 ie. 1.064% T-bill’s EAR. T-bill’s BEY = APR 1+EAR= (1+APR/n)^n Where n is 365/65 So, 1+EAR=(1+(0.01064/(365/65)))^(365/65) EAR=0.0106866 = 1.069%

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