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
WHY ORDINARY SHARES DIFFER IN DIFFERENT COMPANIES

A fixed income security investor can expect to receive a rupee returns from the following sources: (a) Interest payment, (b) Capital gain or loss at maturity or when so

Bond Indenture An indenture builds the formal conditions of a lending relationship between a borrower and a lender. It is a written record, and it outlines most important func

Q. Merits of accept-reject criteria? Merits of ARR:- (i) Simple: - ARR method is very simple to understand and use. (ii) Complete life time of the project is considered:

You have recently won the UniSA "log tossing" competition. The prize of $200 is supposed to be used to buy a 50-year subscription to "Log News" This appears to represent a consid

Loans from the financial institutions: Financial institutions such as the commercial bank life insurance corporation, industries financial development corporation bank of the

What are some of the factors that common stockholders consider when deciding how much, if any, cash dividends they desire from the corporation in which they have invested? Gene

DQ #1: Discuss the challenges of VaR approaches in valuing risk. How does portfolio risk assessment differ from a single asset’s risk assessment? How do managers typically load ba

We have seen computation of present value using single discount rate. But the right way to value a cash flow of a bond is to use multiple discount rates, i.e valuing th

The call prices for various issues mentioned above are known as regular redemption prices. Point to be noted is that the regular redemption prices are above