Question

A U.S. Treasury bill with 69 days to maturity is quoted at a discount yield of 2.29 percent. Assume a $1 million face value. What is the bond equivalent yield

Answer 1

Answer:

2.32%

Explanation:

The formula for bond equivalent yield is in the attachment, we use it with the values provided in this question.

First, use the discount yield to calculate the price (P) of the bond

Face value = $1,000,000

Discount yield = 2.29 or 0.0229 as a decimal

Discount yield = [ (FV - P)/P ] *(360/T)

0.0229 =[ (1,000,000 -P)/P ] *360/69

0.0229P = (1,000,000 -P )5.2174

0.0229P + 5.2174P = 5,217,391.30

Price; P  = $995,628.3618

Next, plug in the numbers in the bond equivalent yield (BEY) formula;

BEY = [ (1,000,000 - 995,628.3618)/$995,628.3618 ] * 365/69

BEY = 0.02323 OR 2.32%