Q3: The table below (WSJ Market Data Center) displays the U.S. Treasury Quotes A
ID: 2784274 • Letter: Q
Question
Q3: The table below (WSJ Market Data Center) displays the U.S. Treasury Quotes As of November 03, 2017, what is the Bond Equivalent Yield of the 12/28/2017 Treasury Bill? TREASURY BILLS GO TO: Notes and Bonds Friday, November 03, 2017 Treasury bill bid and ask data are representative over-the-counter quotations as of 3pm Eastern time quoted as a discount to face value. Treasury bill yields are to maturity and based on the asked quote Asked yield Bid Chg Maturity 11/9/2017 11/16/2017 11/24/2017 11/30/2017 12/7/2017 12/14/2017 12/21/2017 12/28/2017 Asked 0.970 0.980 0.980 0.988 0.970 0.945 0.965 1.055 0.960 0.970 0.970 0.978 0.960 0.935 0.955 1.045 0.015 0.005 unch 0.003 0.018 0.007 0.010 0.010 0.973 0.984 0.984 0.992 0.974 0.949 0.969 1.061Explanation / Answer
Bond equivalent yield of 12/28/2017 maturing T-Bill
Buying at the ask bank discount rate of 1.045% on 3rd Nov, 2017, the trade will settle on 4th Nov therefore it is 55 days to maturity
The face value of T-Bills, F= $100
Therefore Purchase Price of T-Bills
Price P = $100 * (1 – 55 * 0.01045 / 360) = $99.84 (here it follows 360 days of year convention)
Now the bond equivalent yield calculation is as follows
Bond equivalent yield = (365/n) *(F-P/P) (here it follows 365 days of year convention)
Where,
Face value F= $100
Price P = $99.84
Number of days to maturity n = 55 days
Therefore
Bond equivalent yield = (365/55) *{($100- $99.84)/$99.84}
=0.010612 or 1.061%
Bond equivalent yield is 1.061% which is equal to asked yield of 12/28/2017 maturing T-Bill.
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