- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 6. Yield Measures for Floating-Rate Notes and Money Market Instruments

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**CFA Practice Question**

A Treasury bill with 50 days till maturity is quoted with a bank discount rate of 3.50%. An investor purchasing $2,000,000 face value of this Treasury bill would earn an effective annual return of ______.

B. 3.5171%

C. 3.5000%

A. 3.6213%

B. 3.5171%

C. 3.5000%

Correct Answer: A

D = 0.035*(50/360)*$2,000,000 = $9,722.22

P = $2,000,000 - $9,722.22 = $1,990,277.78

EAY = (1 + $9722.22/1990277.78)

F = $2,000,000

D = 0.035*(50/360)*$2,000,000 = $9,722.22

P = $2,000,000 - $9,722.22 = $1,990,277.78

EAY = (1 + $9722.22/1990277.78)

^{365/50}- 1 = 3.6213%###
**User Contributed Comments**
8

User |
Comment |
---|---|

stefdunk |
anyone know a shortcut for this? |

stefdunk |
360 x 0.035 / (360 - (50 x 0.035))= 0.035171 0.035171 x (50/360) + 1 yx (365/50) -1 = 0.036213 this brings it from bank rate to moneymarket yield to EAY |

limpus |
Combining the formula gives: EAY = (1 + (360/(t x rBD) - 1))^(365/t) - 1 |

0is4eva |
Calculate F - D = 1,990,277 HPY = 2,000,000 / 1,990,278 = 1.00488 over 50 days. EAY = (1+HPY)^(365/t) = 1.00488^(365/50) = 1.036213 Correct answer is A, 3.6213% |

bidisha |
i am learning a lot from these examples |

sgossett86 |
Agreed. I'm learning a lot in terms of getting comfortable & gaining confidence with the BAII+, storing, using new functions, inputting lengthy problems with parenthesis, etc. Along with applying and memorizing the formulas because when the test comes, yeah you need to know the formulas, but you need to be confident in your calculator outputs the first time. Having to re-enter, or not be confident with outputs costs a lot of time. |

sgossett86 |
I've got the TI BAII+ guidebook open on the other window for references as needed. |

jmliguori |
You can do this one logically based on the last q. The eff ann yield has to be greater than the HPY of 3.517%. |