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

Calculate the T-bill’s quoted yield.

Quoted yield = D/F * 365/t

Where: D = dollar discount from face value, F = face value,
T = days until maturity, 360 = days in a year

Here D= 35(18500-18465)

F= 18500, T= 65 days

Quoted yield= (35/18500)*(360/65)

Quoted yield=1.048%

Calculate the T-bill’s bond equivalent yield.

bond equivalent yield= ((Par Value – Purchase Price) / Purchase Price) * (365 / Days to Maturity)

=((18500-18465)/18465)*(365/65)

bond equivalent yield=1.064%

Calculate the T-bill’s EAR.

EAR= (1+ bond equivalent yield/n)^n-1

where n = number of compounding periods per year.

=(1+0.010644/(365/65)^(365/65)-1

=(1+0.010644*65/365)^(365/65)-1

EAR=1.069%

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