Yield on treasury bills, Financial Management

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)                                                                                                    

Where,

         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

settlement date.

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.

Posted Date: 9/10/2012 2:10:38 AM | Location : United States







Related Discussions:- Yield on treasury bills, Assignment Help, Ask Question on Yield on treasury bills, Get Answer, Expert's Help, Yield on treasury bills Discussions

Write discussion on Yield on treasury bills
Your posts are moderated
Related Questions
Assume Intel''s stock has an expected return of 26% and a volatility of 50%, while Coca-Cola''s has an expected return of 6% and volatility of 25%. If these two stocks were perfect

For a given IOS and MCC, how do financial managers decide which proposed capital budgeting projects to accept, and which to reject? For a given MCC and IOS, all independent pro

International mortgage-backed securities are the mortgage-backed securities that are issued in a country by a non-domestic entity. With limited size of the Indian

State the major decision of financial management The major decision of financial management is the decision relating to dividend policy. The dividend must be analysed in relat

Question 1: i) Activity Based Costing is better than the Traditional Product Costing. Discuss, by making use of empirical evidence ii) The replacement of cash-based accounti

Do you guys provide Efficient Cash Management assignment help? I need writing a report on Efficient Cash Management.

how would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit?

Investors require an 11% return on a preferred stock that pays a $2.30 annual dividend.  What is the price

Explain the re-measurement and translation process within FASB 52 of translating into the reporting currency the books of a completely owned affiliate that keeps its books in the l

What is the investment opportunity schedule (IOS)?  How does it help financial managers make business decisions? The investment opportunity schedule depicts graphically propose