You can purchase a T-bill that is 95 days from maturity for $12,965. The T-bill
ID: 2728128 • Letter: Y
Question
You can purchase a T-bill that is 95 days from maturity for $12,965. The T-bill has a face value of $13,000. a. Calculate the T-bill’s quoted yield. (Use 360 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) T-bill’s quoted yield % b. Calculate the T-bill’s bond equivalent yield. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) T-bill’s bond equivalent yield % c. Calculate the T-bill’s EAR. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) T-bill’s EAR %
Explanation / Answer
Answer to Part a.
Let i% be the annual yield.
12,965 = 13,000 / (1 + i/360)^95
i = 1.022%
Answer Part b.
Bond Equivalent Yield = (13,000 - 12,965) / 12,965 * 365 / 95 = 1.037%
Answer to Part c.
EAR = (1 + 0.01022/365)^365 - 1 = 1.027%
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