Maryellen Epplin notices that a particular T-Bill has a banker's discount rate of 9 percent in the Wall Street Journal.She knows that this T-Bill has 20 days to maturity and has a face value of $10,000.
What is the yield to maturity on this T-Bill?
A)9 percent
B)0.5 percent
C)4.5 percent
D)9.17 percent
E)None of the options is correct.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) formula can be used to solve for the answer:

YTM = (Face Value - Purchase Price) / (Face Value) * (360 Days / Days to Maturity)

The purchase price in this case is the face value discounted by the banker's discount rate:

Purchase Price = Face Value * (1 - Discount Rate * Days to Maturity / 360)

Substituting the given values:

Purchase Price = $10,000 * (1 - 0.09 * 20 / 360) = $9,822.22

YTM = ($10,000 - $9,822.22) / $10,000 * (360 / 20) = 0.0917 or 9.17%

Therefore, the answer is D (9.17 percent).

Maryellen Epplin Notices That a Particular T-Bill Has a Banker's