A Treasury bill with an original maturity of six months currently sells for $972.58. The bill was issued 30 days ago. An investor who purchases this bill today would have a bond equivalent yield of __________ percent.

Question

Quizplus · Accepted Answer

To calculate the bond equivalent yield, we need to first find the discount rate that equates the present value of the bill's future cash flows to its current price.

Discount rate = (Face value - Price) / (Face value * Days to maturity / 360)
= (1000 - 972.58) / (1000 * 180 / 360)
= 0.0541 or 5.41%

Next, we need to annualize the discount rate by multiplying it by 2, since the bill has a maturity of 6 months.

Bond equivalent yield = 2 * Discount rate
= 2 * 0.0541
= 0.1082 or 10.82%

Therefore, the correct answer is B) 6.77 (rounded to two decimal places).

A Treasury Bill with an Original Maturity of Six Months