4 You purchase a 1 year Tbill with a 10000 face value at a p

4. You purchase a 1 year T-bill with a $10,000 face value at a price today of $9,756.0975.

(a) What is the implied yield to maturity on the 1 year bond?

(b) After 1 year, what is the rate of return of the T-bill?

Solution

(a) Implied YTM = $(10,000 - 9,756.0975) / $10,000 = $243.90 / $10,000 = 0.0244 = 2.44%

(b) Rate of Return = $(10,000 / 9,756.0975) - 1 = 1.0250 - 1 = 0.0250 = 2.5%