24 You can purchase a Tbill that is 73 days from maturity fo

2-4 You can purchase a T-bill that is 73 days from maturity for $16,965. The T-bill has a face value of $17,000. a. Calculate the T-bill’s quoted yield. (Use 360 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) T-bill’s quoted yield % b. Calculate the T-bill’s bond equivalent yield. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) T-bill’s bond equivalent yield % c. Calculate the T-bill’s EAR. (Use 365 days in a year. Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) T-bill’s EAR %

Solution

Solution: a. T-bill’s quoted yield 1.015% Working Notes: T-bill’s quoted yield = ((face value - purchase price )/face value)   x 360 days /period till maturity =(($17,000 - $16,965 )/$17,000 ) x 360/73 =0.01015310229 =1.015% b. T-bill’s bond equivalent yield 1.032% Working Notes: T-bill’s bond equivalent yield = ((face value - purchase price )/purchase price)   x 365 days /period till maturity =(($17,000 - $16,965 )/$16,965 ) x 365/73 =0.0103153551429 =1.032% c. T-bill’s EAR 1.036% Working Notes: T-bill’s EAR = (1+ T-bill’s bond equivalent yield x period till maturity /365 )^(365/period till maturity )   - 1 =(1 + 0.0103153551429 x 73/365)^(365/73)    - 1 =(1 + 0.002063071)^(365/73)    - 1 =1.010358006 -1 =0.010358006 =1.036 % Please feel free to ask if anything about above solution in comment section of the question.