A Treasury bill is quoted at a bank discount yield of 1.08 percent and has 12 days to maturity. What is the bond equivalent yield given that this is a leap year?

Question

Quizplus · Accepted Answer

To convert bank discount yield to bond equivalent yield, we use the formula:
Bond Equivalent Yield = [(100 - BDY x 360/t) / BDY] x 100
where BDY is the bank discount yield, t is the time to maturity in days, and 360 is the number of days in a year.
Substituting the given values, we get:
Bond Equivalent Yield = [(100 - 1.08 x 360/12) / 1.08] x 100
Bond Equivalent Yield = 1.10%
Note that we use 360 instead of 365 since this is a leap year. Therefore, the best choice is C, 1.10 percent.

A Treasury Bill Is Quoted at a Bank Discount Yield