Question

What is the discount yield, bond equivalent yield, and effective annual return on a $1 million treasury bill that currently sells at 93.375 percent of its face value and is 65 days from maturity?

Answer 1

Discount yield :

IT – bill, dry = (($ 1 million - $ 973,750) / $ 1 million) (360 / 65) = 14.538%

Bond equivalent yield : IT – bill, bey = (($ 1 million - $ 973,750) / $973,750) (365 / 65) = 15.138%

EAR:

EAR = (1 + 0.15138 / (365 / 65)) 365 / 65 – 1 = 16.111%