In: Finance
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
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.