Question

A T-bill with face value $10,000 and 77 days to maturity is selling at a bank discount ask yield of 2.4%.

a. What is the price of the bill? (Use 360 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What is its bond equivalent yield? (Use 365 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places.) Bond equivalent yield %

Answer 1

Answer:

Price of bill=$9948.66

Bond equivalent yield= 10.96%

Explanation:

r=ytm=2.4%

F= face value of bill=10000

Step#01: Multiply discount rate to number of days to maturity

   .024 * 77= 1.848

Step#2: divide 1.848/360 to get daily interest factor,we have

                   .005133

Step #3: Subtract the above number from 1.

               1-.005133=.994866

Step#4: Multiply the result by face value that is 10000$.

                  10000 * .994866= $9948.66 price of bill.

Bond equivalent yield:

      =[( Face value -  price of bond )/365] *  d

    where d= number of days left

     = [(10000-9948)/365]*77

     = 10.96%