A US T-bill quote sheet has 90 day T-bill quotes with a 4.80 bid and a 4.74 ask (quoted yields). If the bill has a $10,000 face value an investor could SELL this bill immediately for _____.
Question
A US T-bill quote sheet has 90 day T-bill quotes with a 4.80 bid and a 4.74 ask (quoted yields). If the bill has a $10,000 face value an investor could SELL this bill immediately for _____.
Solution
To calculate the price an investor could sell this bill for, we need to use the bid yield, which is 4.80%. The formula to calculate the price of a T-bill is:
Price = Face Value * (1 - (Yield * (Days to Maturity / 360)))
Here, the face value is $10,000, the yield is 4.80% (or 0.048 when expressed as a decimal), and the days to maturity is 90.
So, the price would be:
Price = $10,000 * (1 - (0.048 * (90 / 360)))
Let's calculate it:
Price = 10,000 * (1 - 0.012) Price = 9,880
So, an investor could sell this bill immediately for $9,880.
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