3. Maturity Rate 3.0 3.6 4.2 3.9 3.4 One-Year Rate One-Year Inflation 2 4 5 Whic

Question

3. Maturity Rate 3.0 3.6 4.2 3.9 3.4 One-Year Rate One-Year Inflation 2 4 5 Which money market instruments are typically quoted on a discount basis? What is the bond equivalent yield of a 91 day, $1 million face value Treasury bill with a discount rate of 4.5 percent? For which money market instruments are rates calculated on.the basis of par value rather than purchase price? Now you would like to purchase a T-bill for $10,000 face value and 180 days to maturity. The current price is $10,218. What is the discount rate on this security? What is its bond equivalent yield?

Explanation / Answer

Treasury bill & Zero coupon bond are typically quoted on a discount basis.

Bond equivalent yield is the effective yield for 6 month multiplied by 2

=(1.045)^182.5/91

=9.2289%

so BEY 9.2289*2=18.46%.

Floating rate bond are are calculated on the basis of par value rather than purchase price on reset date

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