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 |