2.11.2 Treasury Bill Quotes

Question 1

Why are Treasury Bill Quotes quoted differently than those of Treasury Bonds?

Answer 1

Treasury bills are issued at a discounted price and do not offer periodic interest payments.

Question 2

How is the bank discount yield calculated?

Answer 2

Bank discount yield =((Face value- purchase price)/Face value)/(days until maturity/360)

Question 3

What does the yield represents?

Answer 3

The discount to par value the investor receives

Question 4

Why is the bid price higher than Ask?

Answer 4

A dealer will wish to buy at a larger discount and sell at a smaller discount.

Question 5

What does the below imply?

Bid: 3.80%

Answer 5

The bid 3.8% is the interest rate that the dealer proposes as a buyer of the bill. This is the annualized yield on a discount basis. The higher the bid, the more discount the dealer will get on the bond.

Question 6

What does the below imply?

Ask: 3.75%

Answer 6

The ask, 3.75% is the interest rate that the dealer proposes as a seller of this bill. The lower the yield, the less discount and higher price the dealer will receive.

Question 7

A customer will ___at the ask and ____at the bid,

Answer 7

buy, sell

Question 8

The dealer will ___at the bid and ___at the ask.

Answer 8

Buy, Sell

Question 9

A dealer of 90-day Treasury bills posts the following spread: 4.0% – 3.0%.. What is the bank discount yield?

Answer 9

Using the formula, the bid price is 99 and ask is 99.25