25 A Tbill that is 255 days from maturity is selling for 959

2-5 A T-bill that is 255 days from maturity is selling for $95,970. The T-bill has a face value of $100,000. a. Calculate the discount yield, bond equivalent yield, and EAR on the T-bill. (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) Discount yield % Bond equivalent yield % EAR % b. Calculate the discount yield, bond equivalent yield, and EAR on the T-bill if it matures in 330 days. (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your answers to 2 decimal places.(e.g., 32.16)) Discount yield % Bond equivalent yield % EAR %

Solution

Part 1:

Discount Yield =  (par value - purchase price)[/par value] * 360/days to maturity

Discount yield = (100,000 -95,970)/100,000 *360/255

Dsicount Yield = 4,030/100,000*360/255

Discount Yield = 0.0569 = 5.69%

Bond Equivalent Yield = (par value - purchase price)[/purchase price] * 365/days to maturity

Bond Equivalent Yield = (100,000 -95,970)/95,970*365/255

Bond Eqivalent Yield = 0.0601 = 6.01%

EAR = (1 + BYE/n)^n -1

EAR = (1+ 0.0601/(365/255))^(365/255) -1 = 0.0606 = 6.06%

Part -2

Discount Yield =  (par value - purchase price)[/par value] * 360/days to maturity

Discount yield = (100,000 -95,970)/100,000 *360/330

Dsicount Yield = 4,030/100,000*360/330

Discount Yield = 0.0440 = 4.40%

Bond Equivalent Yield = (par value - purchase price)[/purchase price] * 365/days to maturity

Bond Equivalent Yield = (100,000 -95,970)/95,970*365/330

Bond Eqivalent Yield = 0.0464 = 4.64%

EAR = (1 + BYE/n)^n -1

EAR = (1+ 0.0464/(365/330))^(365/330) -1 = 0.0465= 4.65%