Problem 9-12 A Treasury bill purchased in December 2015 has 118 days until matur

Question

Problem 9-12
A Treasury bill purchased in December 2015 has 118 days until maturity and a bank discount yield of 2.13 percent. Assume a $100 face value.

a.  
What is the price of the bill as a percentage of face value? (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places. Omit the "%" sign in your response.)

Price   %

b.   What is the bond equivalent yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Bond equivalent yield   %

Explanation / Answer

1) Bank discount yield =( Face value - Purchase price)/Face value*360/Days to maturity

0.0213 = (100-X)/100*360/118

= 99.30

Price of the treasury bill = 99.30 percent of face value

2) Bond equivalent yield =( Face value- Purchase price)/Purchase price *365/Days to maturity

= ( 100-99.30)/99.30*365/118

= 2.18%

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