Question

In: Finance

You bought a 1-year Treasury bill with a face value of $1,000 for $856.42. 3 Months...

You bought a 1-year Treasury bill with a face value of $1,000 for $856.42. 3 Months later, you sold it for $890.26.

What was your annualized return?

Please include Formula and what each formula component is

Solutions

Expert Solution

Lets first calculate yield = (1000 - price)/price * 100%

= (1000 - 856.42)/856.42 * 100%

= 143.58/856.42 * 100%

= 0.16765 *100%

= 16.765%

Annualized return = yield * 365/ days to maturity

Total number of days in a year = 365

Days to maturity = Original period - holding period = 12 months - 3 months = 9 months

Numbr of day in 9 months =9 *30 days = 270 days

So, 270 days are days to maturity.

Annualized return = yield * 365/ days to maturity

= 16.765% * 365/270

= 16.765% * 1.35

= 22.63275 % approx.


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