Question

What is the yield to maturity for Treasury strips with a quoted price of 87.45 with 4.5 years to maturity? Assume $100,000 par.

What is the price of a $1 million Treasury Bill with 156 days to maturity and a discount yield of 2.15%?

Answer 1

What is the yield to maturity for Treasury strips with a quoted price of 87.45 with 4.5 years to maturity? Assume $100,000 par.

Yield to maturity of treasury strips can be calculated in following manner -

Yield to maturity of treasury strips = (Face value/ Quoted price) ^ (1/n) -1

Where,

Yield to maturity of treasury strips =?

Face value or par value = $100,000

Quoted price of strips = 87.45% of face value = 87.45% * $100,000 = $87,450

Time period n = 4.5 years

Therefore,

Yield to maturity of treasury strips = ($100,000/$87,450) ^ (1/4.5) -1

= 1.03025 – 1 = 0.03025 or 3.025%

What is the price of a $1 million Treasury Bill with 156 days to maturity and a discount yield of 2.15%?

Price of Treasury bill = F/ (1+i) ^ (n/360)

Where,

Price of Treasury bill =?

Face value or Maturity value of price of Treasury bill = $1 million or $1,000,000

i = discount yield = 2.15% per year

And time period for maturity n = 156 days or (156/360) year [360 days convention is used for discount yield]

Therefore

Price of Treasury bill = $1,000,000 / (1+2.15%) ^ (156/360)

= $ 99,082.44