In comparing the yield to maturity on a Treasury bill with the yield on a discount basis on the same bill, we can say that the yield to maturity
A)will always be greater than the yield on a discount basis.
B)will always be less than the yield on a discount basis.
C)will always be equal to the yield on a discount basis, provided the holding period is the same as the number of years to maturity.
D)rises whenever the yield on a discount basis falls.

Question

Quizplus · Accepted Answer

The yield to maturity on a Treasury bill takes into account the compounding effect over the period until maturity, while the yield on a discount basis does not. This results in the yield to maturity being always greater than the yield on a discount basis, as it reflects the true earnings on the investment over time.

In Comparing the Yield to Maturity on a Treasury Bill