I keep getting way off the anwser! Someone please help me on this one: Suppose you are considering purchasing $10,000 par value of US Treasury Bills that will mature in 121 days for a Bank Discount Yield of 4.6%. A. Compute the actual discount amount that you will realize if you make the purchase and hold the security until maturity. B. In words the person who lives next door would understand, contrast the information content of the bank discount yield and effective annual yield. (Your answer must make clear that you know the difference in the investment implications of both yield measures.)
A: 10,000*4.6%*(121/360) = $155 -> Price of a US TBill = $10,000 - $155 = $9,845 B: holding period yield = (10,000-9,845)/9,845 - 1 = 1.57% effective annual yield = (1+HPY)^(365/121)-1 = 4.81%