How to Calculate Treasury Bill Rate

Treasury Bill Yield Formula:

\[ Yield = \frac{(Face\ Value - Purchase\ Price)}{Purchase\ Price} \times \frac{360}{Days} \]

Yield (%):

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1. What is Treasury Bill Yield?

Treasury Bill Yield represents the annualized return on investment for U.S. government short-term debt securities. T-bills are sold at a discount to face value and mature at par, with the difference representing the investor's earnings.

2. How Does the Calculator Work?

The calculator uses the Treasury Bill Yield formula:

\[ Yield = \frac{(Face\ Value - Purchase\ Price)}{Purchase\ Price} \times \frac{360}{Days} \]

Where:

$ Face\ Value $ — The maturity value of the T-bill (dollars)
$ Purchase\ Price $ — The discounted price at which the T-bill is purchased (dollars)
$ Days $ — The number of days until maturity (days)
$ 360 $ — The number of days in the banker's year used for annualization

Explanation: The formula calculates the discount yield, which annualizes the return based on a 360-day year, standard practice for money market instruments.

3. Importance of Treasury Bill Yield Calculation

Details: Accurate yield calculation is crucial for comparing T-bill returns with other investments, assessing risk-free rates, and making informed investment decisions in the money market.

4. Using the Calculator

Tips: Enter face value and purchase price in dollars, and days to maturity. Ensure purchase price is less than face value for valid calculation. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why use 360 days instead of 365?
A: The 360-day year is a banking convention for money market instruments that simplifies calculations and provides consistency across financial markets.

Q2: What is the typical face value of Treasury bills?
A: T-bills are typically issued with face values of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000, and $1 million.

Q3: How often are Treasury bills issued?
A: The U.S. Treasury issues 4-week, 13-week, 26-week, and 52-week T-bills on a regular schedule throughout the year.

Q4: Are Treasury bill yields taxable?
A: T-bill interest is exempt from state and local income taxes but is subject to federal income tax.

Q5: What is the difference between discount yield and bond equivalent yield?
A: Discount yield uses 360 days, while bond equivalent yield uses 365 days and provides a more accurate comparison with other fixed-income securities.