A 90-day Treasury bill is quoted as having a price of $987.50. What is its bond equivalent yield?
A) 5.00%
B) 5.13%
C) 5.62%
D) 5.79%

Question

A 90-day Treasury bill is quoted as having a price of $987.50. What is its bond equivalent yield?
A) 5.00%
B) 5.13% 
C) 5.62%
D) 5.79%

Quizplus · Accepted Answer

To calculate the bond equivalent yield, use the following formula:

BEY = (100 – P) x (360/days to maturity) x 2

Where P is the price of the Treasury bill and 360 is the number of days in a year used in the bond market.

Applying the formula:

BEY = (100 – 987.50) x (360/90) x 2
BEY = 12.5 x 4 x 2
BEY = 100

Therefore, the bond equivalent yield is 5.13% (since BEY = annualized discount rate x 100, and the annualized discount rate is equal to the Treasury bill's yield).

A 90-Day Treasury Bill Is Quoted as Having a Price