At auction on August 18, 2005, 3-month T-bills were sold at a discount of 3.670%. What was the simple annual yield Round answer to the nearest 0.001%.

Question

At auction on August 18, 2005, 3-month T-bills were sold at a discount of 3.670%. What was the simple annual yield  Round answer to the nearest 0.001%.

Quizplus · Accepted Answer

The simple annual yield can be calculated using the formula for the discount yield on T-bills: $\text{Discount Yield} = \left(\frac{\text{Discount}}{\text{Face Value}}\right) \times \left(\frac{360}{\text{Days to Maturity}}\right)$. Given a discount of 3.670% for a 3-month (or approximately 90 days) T-bill, the annualized yield is $\left(\frac{3.670}{100-3.670}\right) \times \left(\frac{360}{90}\right) = 3.704\%$, rounding to the nearest 0.001%.

At Auction on August 18, 2005, 3-Month T-Bills Were Sold r=1.038%r = 1.038 \%r=1.038%

At Auction on August 18, 2005, 3-Month T-Bills Were Sold $r = 1.038 \%$