Q) If the spot rate for a Treasury Bill with a maturity date in 3 months time (91 days) is 8.91%, what is its price today ?
The yield to maturity for zero coupon bonds is referred to as the spot rate, so Yield to Maturity is 8.91
The face value of a Treasury Bill is $1,000,000
The day count convention is Actual/360
price = 1000000 / (1 + (8.91/100))^(91/360) = $978,656.1
Q) If the spot rate for a Treasury Bill with a maturity date in 6 months time (182 days) is 11.56%, what is its price today ?
price = 1000000 / (1 + (8.91/100))^(182/360) = $946,197.5
Q) What is the annualized bank discount yield for this 6 month Treasury Bill (expressed as a decimal) ?
Treasury Bills are traded in the secondary market, and are quoted based on their bank discount yield.
This is the approximate annualized return the buyer should expect when holding to maturity.
discount yield = (dollar discount from face value / face value) * 360 / (days until maturity)
discount yield = (946,197.5 / 1,000,000) * (360/182)
discount yield = 1.8716 %
Q) Can you describe the term Holding-Period Yield ?
Q) Can you describe the term Effective Annual Yield ?
Also known as Effective Interest (quant page)
This converts an interest rate to an interest rate that is compounded every year.
This allows investments that have different compounding frequencies to be compared.
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