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Chapter_05 - Discount on sale is the difference between the...

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Problem 5.1 U.S. Treasury Bill Auction Rates March 2009 Assumptions 3-Month T-Bill 6-Month T-Bill Treasury bill, face value $10,000.00 $10,000.00 Price at sale $9,993.93 $9,976.74 a. Discount on sale $6.07 $23.26 b. Simple yield 0.0607% 0.2331% c. Annualized yield 0.2432% 0.4668% The interest yields on U.S. Treasury securities in early 2009 fell to very low levels as a result of the combined events surrounding the global financial crisis. Calculate the simple and annualized yields for the 3-month and 6-month Treasury bills auctioned on March 9, 2009 listed here.
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Unformatted text preview: Discount on sale is the difference between the face value of the security and the price it is sold at auction. Simple yield is found by dividing the discount (the dollar return to the investor on maturity) by the price paid on purchase. Annualized yield is found by compounding the simple yield by the number of periods per year. In this case a 3-month T-Bill is assumed to have a 90 day maturity within a 360 day interest rate year (U.S. dollar practices)....
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