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FRM Part I · FRM Exam Part I · Bond Yields and Return Calculations

A 180-day Treasury bill with a face value of 100 is priced at 98. Using a 365-day year, what is its bond-equivalent yield?

The bond-equivalent yield is about 4.14%. The return on the amount invested is 2/98, or 2.04% over 180 days, and annualizing with 365/180 gives 4.14%. Using face value as the base or a 360-day year understates the yield.

  1. A4.14%Correct
  2. B4.00%
  3. C4.08%
  4. D4.06%

Explanation

Holding-period return is (100-98)/98 = 2.0408%. Annualized on a 365-day basis: 2.0408% x 365/180 = 4.14%. The 4.00% option is the discount yield on a 360-day basis, 4.08% uses 360/180 with the price base, and 4.06% divides by face value instead of price.

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