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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Debt Instruments and Government Securities

A 91-day Treasury Bill with a face value of Rs 1,00,000 is purchased at Rs 98,500. Ignoring day-count refinements, what is the discount amount, and how is the T-bill redeemed?

The discount is Rs 1,500 and the T-bill is redeemed at its face value of Rs 1,00,000 on maturity. T-bills are zero-coupon instruments issued at a discount, so there are no periodic interest payments; the investor's return is the difference between face value and purchase price.

  1. ARs 1,500; redeemed at face value on maturityCorrect
  2. BRs 1,500; redeemed at Rs 98,500 on maturity
  3. CRs 98,500; redeemed with periodic coupons
  4. DRs 1,500; paid as half-yearly interest during its life

Explanation

Discount = 1,00,000 - 98,500 = Rs 1,500. T-bills are zero-coupon instruments issued at a discount and redeemed at face value at maturity, so the gain is the discount. Options with coupons or redemption at purchase price are wrong.

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