2.2.1.1. Price Quotations
T-bills are quoted on a bank discount yield basis. To calculate the price of a T-bill, you must first multiply the bank discount yield, converted to a decimal, by the number of days left to maturity and divide by 360 days. Then subtract that number from 100 to give you the price of a T-bill with a face value of $100. T-bills are sold in $100 increments.
Similarly, quotations for T-bill futures contracts are based on the bank discount yield, using an index devised by the International Monetary Market. The IMM index is the difference between 100 and the bank discount yield of the underlying T-bill.
Example: On July 18, a 13-week T-bill futures contract with a September maturity is quoted on the International Monetary Market at 97.48. The bank discount yield of the futures contract having a September maturity is 2.52%. The IMM index of 97.48 is derived by subtracting the bank discount yield from 100 (100 – 2.52 = 97.48).
The quoted IMM index is not identical to the price of the T-bill futures contract. As with the bank discount yield for the Treasury bills themselves, the purchase price for the futures contract is found by revising the IMM index to account for the time left to maturity. In the case of a T-bill futures contract, we mean the maturity of the contract’s underlying asset, which is a Treasury bill. The formula is:
Or equivalently:
Remember that the size of a Treasury bill futures contract is fixed at $1 million. The expression “(100 – IMM index) / 100” is simply the bank discount yield of the underlying security expressed as a fraction.
Example: The deliverable T-bill in the previous example will have a 91-