Question

A three-month (90 day) Treasury bill with a $10,000 face value is quoted at a discount of 0.60.

a) What is the implied price of the Treasury bill?
b. What is the implied rate of return that an investor can earn over the 90-day period?

Answer 1

A) $9,940

B) 2.43 %

Step-by-step explanation:

A Treasury bill is a government debt security which has maturity of less than one year. It is issued on short term basis. These debt securities do not pay regular interest payments to its investors, Treasury bills has no coupon interest. These bills are sold at a discount to their redemption price. So, a Treasury bill with a face value of $10,000 quoted at a discount of 0.6 will be sold for $9,940 (100-0.6)%.

Its yield is calculated in the following way

Annual Rate (yield) = 0.6/90 * 365

= 2.43 %