You can purchase a T-bill that is 95 days from maturity for $12,965. The T-bill

Question

You can purchase a T-bill that is 95 days from maturity for $12,965. The T-bill has a face value of $13,000 .

You can purchase a T-bill that is 95 days from maturity for $12,965. The T-bill has a face value of $13,000.

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

Part A

PV= 12965

FV= 13000

Quoted yield = ( FV- PV) x365 / (FV x n)

                          = (13,000-12,965) x 365 /(13,000 x 95)

                          = 12775/ 1235000

                          = 1.034%

Part B

Bond Equivakent yield = ( FV- PV) x365 / (PV x n)

                          = (13,000-12,965) x 365 /(12,965 x 95)

                          = 12,775/ 1231675

                          = 1.037%

Part C

EAR = (1+ BEYx n/ 365)^(365/n) -1

        = (1+0.0137 x 95 / 365)^ (365/95) -1

        = 1.01041 -1

        = 1.041%

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