Question

you buy a $1 million face value 180 day t-bill at a discount yield of 6 percent. What is the price of the bill?, What is the simple interest yield on the bill?, Suppose you sold the bill after 30 days at a price of $977,000 what is your holding period?, What is your profit or loss if you financed the bill with a 30 day term repo at repo rate of 5.5%? assume the bill will be sold at the end of the day at discount yield of 5.52%

Answer 1

Assumption : 1 Year = 360 days

1. Price of the Bill :

Face value : $ 10,00,000

Discount yield : 6% per year

Price of the bill = Face value - ( Face Value X Discount % X 180 / 360)

= 10,00,000 - ( 10,00,000 x 6% x 180 / 360)

= 10,00,000 - 30,000

= $ 9,70,000 /-

2. Simple Interest on the Bill

=((Face value T-Bill ) - (Price of the T-Bill)) /( face value of the T-Bill ) * X100 X 360 /180

=( 10,00,000 - 9,70,000 ) / 10,00,000 X 100 X 360 /180

=30,000 / 10,00,000 X 100 x 360 /180

= 6 %

3. Holding period if sold after 30 days at a price of $ 9,77,000

If it is sold after 30 days at a price of $ 9,77,000 then , holding period is 30 days only.

4. Profit / Loss after 30 days if it is financed with term report at repo rate of 5.5% per annum

= (Discount Yield - Cost of Finance) X Face value of t-bill X 180 /360

=(5.52 % - 5.5 %) X 10,00,000 x 180 / 360

=0.02 % X 10,00,000 X 0.5

= $ 10,000

Profit of $ 10,000 /-