Currently,a $1 million,91-day T-bill sells for a 2.5% discount.What is the bond equivalent yield?

Question

Quizplus · Accepted Answer

The bond equivalent yield can be calculated using the following formula:
BEY = [(face value - purchase price)/purchase price] x (365/days to maturity)

Using the given information:
Face value = $1 million
Purchase price = $1 million - (2.5% x $1 million) = $975,000
Days to maturity = 91

BEY = [(1,000,000 - 975,000)/975,000] x (365/91) = 0.02551 or 2.551%

Therefore, the best choice is C.

Currently,a $1 Million,91-Day T-Bill Sells for a 2