Government of Manitoba 364day Tbills with a face value of 1

Government of Manitoba 364-day T-bills with a face value of $1 950 000 were purchased on April 17 for $1 875 960. The T-bills were sold on May 25 for $1895 900. a) What was the market yield rate on April 17? b) What was the yield rate on May 25? c) What was the rate of return realized?

Solution

Market Yield on April 17 =(1+r)

(face value/market value)

1.039468

r = 1.039468-1

0.039468

3.95%

Market Yield on May 25 = (1+r)

(face value/market value)^(38/364)

(1950000/1895900)^(38/364)

1.002942

r = 1.002942-1

0.29%

realized yield

(1895900-1875960)/1875960

1.06%