Series 3: Exercise

Exercise

Answer the questions using the T-bill quote.

Maturity	Days to Maturity	Bid	Ask	Change	Ask Yield
June 20 ’18	33	4.75	4.70	-0.01	4.78

1. 1. What is the bank discount yield of the Treasury bills as proposed by the buyer?
2. A. 0.0475
3. B. 0.0470
4. C. 0.0478
5. D. 0.0435
6. 2. What is the bank discount yield of the Treasury bills as proposed by the seller?
7. A. 0.0475
8. B. 0.0470
9. C. 0.0478
10. D. 0.0435
11. 3. Assuming the Treasury bills have a $100,000 face value, what is their purchase price at the buyer’s bid?
12. A. $99,569.17
13. B. $99,986.94
14. C. $99,986.81
15. D. $99,564.58

Answers

1. 1. A. The bank discount yield for Treasury bills as proposed by the buyer is always equal to their bid price expressed as a percentage.
2. 2. B. The bank discount yield for Treasury bills as proposed by the seller is always equal to the ask price expressed as a percentage.
3. 3. D. To determine purchase price for Treasury bills with a $20,000, follow the equation:

Doing so gives a purchase price of $99,564.58 ($100,000 – (33 x $100,000 x 0.0475 / 36