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**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%.

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**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 |