Question

2-4 You can purchase a T-bill that is 73 days from maturity for $16,965. The T-bill has a face value of $17,000. 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 %

Answer 1

Solution:
a.	T-bill’s quoted yield	1.015%
Working Notes:
	T-bill’s quoted yield = ((face value - purchase price )/face value)   x 360 days /period till maturity
		=(($17,000 - $16,965 )/$17,000 ) x 360/73
		=0.01015310229
		=1.015%
b.	T-bill’s bond equivalent yield	1.032%
Working Notes:
	T-bill’s bond equivalent yield = ((face value - purchase price )/purchase price)   x 365 days /period till maturity
		=(($17,000 - $16,965 )/$16,965 ) x 365/73
		=0.0103153551429
		=1.032%
c.	T-bill’s EAR	1.036%
Working Notes:
	T-bill’s EAR = (1+ T-bill’s bond equivalent yield x period till maturity /365 )^(365/period till maturity )   - 1
		=(1 + 0.0103153551429 x 73/365)^(365/73)    - 1
		=(1 + 0.002063071)^(365/73)    - 1
		=1.010358006 -1
		=0.010358006
		=1.036 %
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