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25 November, 08:53

A Treasury bill that settles on May 18, 2016, pays $100,000 on August 21, 2016. Assuming a discount rate of 3.23 percent, what are the price and bond equivalent yield? Use Excel to answer this question. (Round your price answer to 2 decimal places. Enter your yield answer as a percent rounded to 3 decimal places.)

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  1. 25 November, 11:47
    0
    Price = $98,657.05

    bond equivalent yield = 5.52%

    Explanation:

    Number of days between May 18 to August 21 = 95 days

    Interest rate for 95 days = 5.23% * (95 / 365)

    = 5.23% * 0.26

    = 1.36%

    Interest rate for 95 days is 1.36%.

    Price of treasury bond = $100,000 / (1 + 1.36%)

    = $98,657.05.

    Price of treasury bond is 98,657.05.

    b.

    Bond equivalent yield = 1 / (1 - 5.23%) - 1

    = 1.0552 - 1

    = 5.52%

    Bond equivalent yield is 5.52%.
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