Jane Peebles purchased a T-bill that matures in 200 days for $97,500. The face value of the bill is $100,000. What is the money market yield on the bill? A 4.5% B 4.615% The correct answer is B How to calculate this Money Market Yield on the bill?
First you need to calculate the bank-discount yield (2500/100000)*(360*200) = 0.045 Then you plug this into the money market yield formula: [360*d]/[360-t*d] where d is the bank discount yield, and t is the time left until maturity = [360*0.045]/[360-200*0.045] =0.04615 = 4.615%
I find cramming the forumla pretty difficult. MMY = (2.5k/97.5k)*(360/200) S
Good call, I completely forgot about that. Thanks.