The face value of a $1,000,000 T-bill with 78 days to maturity is priced at $987,845. What is the bank discount yield (annualized) quote for the T-bill? A. 5.160%. B. 5.750%. C. 5.610%. D. 5.670%. Ans:C I dunno y i keep getting D
Bank discount yield is return based on face value (it’s not considered a true yield, since you don’t divide by the investment amount). 12155/1,000,000 = 0.01216 (holding period bank discount yield). Annualize based on 360 day year, 1.216 * 360/78 = 5.61%
BDY = [(P1-Po)/Po]*(360/t) = [(1m- 987,845)/1m]*(360/78) = 5.61% D.