Question

# suppose an investor pays $98,000 for a $100,000 t-bill maturing in 120 days. if the t-bill is held until maturity, what is the t-bill’s discount yield? what is the tbill bey?

Answer

{"Discount Yield":"6%","T-Bill BEY":"7.1251%"}

- Calculate the discount: 100,000 - 98,000 = 2,000.
- Calculate the discount yield: D = (Discount / Face Value) * (360 / Days to Maturity). Discount = 2,000, Face Value = 100,000, Days to Maturity = 120. D = (2,000 / 100,000) * (360 / 120) = 0.06 or 6%.
- Calculate the T-Bill BEY using the formula: BEY = [(FV - P) / P] * [365 / DTM]. FV = 100,000, P = 98,000, DTM = 120. BEY = [(100,000 - 98,000) / 98,000] * [365 / 120] = 7.1251%.