A T-bill that is 275 days from maturity is selling for $96,010. The T-bill has a

Question

A T-bill that is 275 days from maturity is selling for $96,010. The T-bill has a face value of $100,000. a. Calculate the discount yield, bond equivalent yield, and EAR on the T-bill. (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) Discount yield Bond equivalent yield EAR b. Calculate the discount yield, bond equivalent yield, and EAR on the T-bill if it matures in 350 days. (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 2 decimal places.(e.g., 32.16)) Discount yield Bond equivalent yield EAR

Explanation / Answer

PART a

1:Discount yield = (Par value-Price)/Par value * 360/Days to maturity

= (100000-96010)*360/(100000 *275)

=5.22%

BEY = (Par value-Price)/Par value * 365/Days to maturity

= (100000-96010)*365/(100000 *275)

=5.3%

EAR = (1+ BEY/(365/Maturity))^(365/Maturity) -1

=(1+0.053/(365/275))^(365/275) -1

= 5.33%

PART b

1:Discount yield = (Par value-Price)/Par value * 360/Days to maturity

= (100000-96010)*360/(100000 *350)

=4.10%

BEY = (Par value-Price)/Par value * 365/Days to maturity

= (100000-96010)*365/(100000 *350)

=4.16%

EAR = (1+ BEY/(365/Maturity))^(365/Maturity) -1

=(1+0.053/(365/350))^(365/350) -1

= 5.31%

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