You would like to purchase a Treasury bill that has a $10,000 face value and is 68 days from...

Question:

You would like to purchase a Treasury bill that has a $10,000 face value and is 68 days from maturity. The current price of the Treasury bill is $9,875. Calculate the discount yield on this Treasury bill.

Treasury Securities:

Treasury securities are debt financial securities that are backed by the government. The maturity period of the treasury securities ranges from less than a year to thirty years.

Answer and Explanation: 1

Data:

Face value = $10,000

Days from maturity = 68 days

Current price (T-bill) = $9,875

Solving:

{eq}Discount \ yield \ (T-bill) \ = \ \dfrac{Face \ value \ - \ Current \ price \ (T-bill)}{Face \ value} \ \times \ \dfrac{360}{Days \ from \ maturity} \\ Discount \ yield \ (T-bill) \ = \ \dfrac{10,000 \ - \ 9,875}{10,000} \ \times \ \dfrac{360}{68} \\ Discount \ yield \ (T-bill) \ = \ \dfrac{125}{10,000} \ \times \ \dfrac{360}{68} \\ Discount \ yield \ (T-bill) \ = \ 0.0662 \ or \ 6.62\% {/eq}


Learn more about this topic:

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Government Securities: Definition, Types & Examples

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Chapter 24 / Lesson 12

Find out exactly what are government securities and learn about the government securities definition. Discover the purpose of government-backed securities and see how they are utilized in the financial world through their different types and examples.


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