CFA Practice Question

CFA Practice Question

Consider an investor who buys a T-Bill with 71 days to maturity, a face value of F = $1,000,000, and price of P = $988,200. What is the effective annual yield quote for this U.S. T-Bill?
A. 6.965%
B. 6.292%
C. 0.06622
Explanation: The effective annual yield quote for a U.S. T-Bill is calculated as follows: EAY = (1+HPY)365/t - 1, where: EAY = effective annual yield, HPY = holding period yield, and t = days until maturity. It follows: EAY = (1+0.01194)365/71 - 1 = 0.06292 = 6.262%.

User Contributed Comments 13

User Comment
KD101 HPY = (Face Value- Price)/Price = 1.94%
lwang014 i would say HPY=1.194%
lwang014 btw, are we supposed to use the 365 days or 360 days in solving this problem?
faith you use 365 for EAY
ursula on your hp you can FV: 1000, PV -988.2, n: 71/365, solve for i...lazy but quick.
jackwez lazy, quick, and always accurate....
sharpos good work ursula
cheers love lazy and quick
scotty21 Damn, forgot to make the PV negative on my calculator - Got an error three times and nearly threw it at the wall.
colinn Nice shortcut, Ursula. One less thing to remember.
jpducros mmm, using my HP as suggested, I get 6,138 %, not 6,292 %...how did you get it right ?
arudkov 2 jpducros - i got the same result on my hp(((
cslau83 i always thought for T-Bills its FV-PV/FV
indrayudha on TI, the usual drill
FV=1,000,000
PV=-988,200 (remember minus sign, you're giving out cash now to receive cash later)
N=71/365
CPT I
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