The coupon equivalent yield of a one-year Treasury bill with a $1,000 face value and a current price of $970 is __________ percent.

Question

Quizplus · Accepted Answer

Coupon equivalent yield (CEY) is the annualized rate of return on a discount instrument. It is calculated by finding the yield that would produce the same cash flow as the discount bond.

In this case, the one-year Treasury bill is selling at a discount since its price ($970) is lower than its face value ($1,000). To calculate the CEY of the Treasury bill, we need to find the yield that would discount the face value to the current price over a one-year period.

Using the following formula:

CEY = (Face Value - Price)/Face Value x (360/days until maturity)

CEY = ($1,000 - $970)/$1,000 x (360/365)

CEY = 3.09%

Rounding to the nearest tenth, the CEY of the Treasury bill is 3.1%, which corresponds to answer choice A.

The Coupon Equivalent Yield of a One-Year Treasury Bill with a $1,000