A Treasury bill with a July 11 maturity date is quoted today at 8.46 bid and 8.40 asked. How much would you pay today (January 11) for one bill?

Question

Quizplus · Accepted Answer

The quoted price is based on a discount rate, which means that the difference between the face value and the quoted price is the interest that will be earned. To calculate the price, we need to determine the number of days between January 11 and July 11, which is 181 days.

The formula to calculate the price is:

Price = Face Value / (1 + (Discount Rate x Days to Maturity / 360))

Plugging in the numbers, we get:

Price = 100000 / (1 + (0.0846 x 181/360)) = $90,420.32

However, we need to adjust for the bid-ask spread. The bid price is what a buyer is willing to pay, while the ask price is what a seller is willing to accept. We will use the ask price as a conservative estimate of what the bill is worth.

Adjusted Price = Price x Ask Price / 100
Adjusted Price = $90,420.32 x 100 / 100.4 = $90,120.22

Therefore, the amount you would pay today for one bill is $9,580.

A Treasury Bill with a July 11 Maturity Date Is