A firm has a $10,000 surplus cash balance and is thinking of putting it in a 91-day T-bill. If the T-bill is selling for a discount rate of 5%, and has a par (face) value of $10,000, what is the purchase price for the T-bill, and what is its bond equivalent yield and annual compound yield?

Question

Quizplus · Accepted Answer

Price T-bill = Par Value [1 - ((d x n) / 360)] 
Price of T-bill = $10,000 [1 - (.05 x 91)/360)] = $9,873.61 
Bond Equivalent Yield = [(Par - Price) / Price] x (365 / N)] 
= [10,000 - 9,873.61)/$9,873.61] x (365/91) = .0513 or 5.13% 
Annual Compound Yield = {[Par / Price]^365 / N} - 1 
=[[10,000/9,873.61}^(365/91 } - 1 = .0523 or 5.23%

A Firm Has a $10,000 Surplus Cash Balance and Is