Answer:
Annual Yield = 34.08%
Explanation:
A treasury is a short-term financial instrument issued by a government with a maturity date of 365 days or less. It is issued for a value less than the its face value., therefore it is a discounted instrument.The face value is the amount that the investor will receive at the maturity of the bill.
To calculate the the effective annual yield of a bond; follow the steps below:
Step 1: Calculate the return earned for the investment period. This called the yield for the investment period. Note that the investment may be for less than 365 days depending on the number of days left to maturity when it was purchased.
(Face Value - Price)/Price × 100
= ((100-90)/90)× 100= 11.%
This helps to ascertained the return earned as a percentage of the amount invested.
Step 2: Calculate the annual effective rate. This is required to determine the equivalent return (yield) per annum should the investment be made for one year.
Annualized Yield= (Yield/Time period to maturity) × 365
= (11.11%/119) × 365
= 34.08%
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Allocated to future accounting periods equally over the periods receiving the benefit.
