Treasury Bills, popularly known as T-bills, are issued in India by the RBI on behalf of the Government of India. T-bills are short-term securities with a maturity of 91,182 and 364 days. These are issued at a discount and are redeemed at par. Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs.25,000. The yield on T-bills is calculated on discount basis. We can determine the yield on T-bills with the help of the following formula:
d = (1 - p) (360 / NSM)
d = Yield on a discount basis.
p = Settlement price per Rs.1 of maturity value.
NSM = Number of days to maturity i.e., difference between the maturity date and the
To understand it better, let us assume a treasury bill with settlement date of 05/01/2007. The maturity period of the bill is 15/05/2007 and at a price of 0.98794893. The number of days from the settlement date to the maturity date is 130. So, the yield on a discount basis is,
d = (1 - 0.98794893) (360/130) = 3.34%
Once the yield on discount basis is determined, we can calculate the price of a bill (per Rs.1 of maturity value) with the help of the following formula:
p = 1 - d (NSM /360)
p = 1 - 0.0334 (130/360) = 0.98794893.