Assume you are going to buy a 90-day Treasury bill with a face of $1,000 for a p

Question

Assume you are going to buy a 90-day Treasury bill with a face of $1,000 for a price of $944. Calculate the DRY, or discount rate yield. Also calculate the IRY, or investment return yield.

Why do the DRY and the IRY result in different values? Explain why this difference, even though seemingly small, can be very important.
Which of th following is not a characteristic of a Treasury Bill auction? Assume you are going to buy a 90-day Treasury bill with a face of $1,000 for a price of $944. Calculate the DRY, or discount rate yield. Also calculate the IRY, or investment return yield.

Why do the DRY and the IRY result in different values? Explain why this difference, even though seemingly small, can be very important.
Which of th following is not a characteristic of a Treasury Bill auction?

Why do the DRY and the IRY result in different values? Explain why this difference, even though seemingly small, can be very important.
Which of th following is not a characteristic of a Treasury Bill auction?

Explanation / Answer

Discount rate yield = ((Par value - Purchase price)/par value )*360

=((1000-944)/1000)*360/90 = 0.224 or 22.4%.

Investment return yield = ((Par value - Purchase price)/Purchase value )*360
= ((1000-944)/944)*360/90 = 0.237 or 23.7%.

The differnce between two yields is the investment yield calculated based on the investment made that is purchased amount and Discount rate is compared with the base of par value.

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