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

A 91-day Treasury bill with face value 100 is quoted at a discount yield of 4.80% (actual/360). The bond-equivalent yield (actual/365, simple) is closest to:

The bond-equivalent yield is about 4.93%. The bill's price is 98.7867, so the 91-day return on price is 1.2133/98.7867, or 1.228%. Annualizing with 365/91 gives 4.93%. Annualizing with 360 days gives 4.86%, which is the money market yield rather than the bond-equivalent yield.

  1. A4.73%
  2. B4.80%
  3. C4.86%
  4. D4.93%Correct

Explanation

Price = 100 - 4.80 x 91/360 = 98.7867. Holding-period return = 1.2133/98.7867 = 1.2282%. Annualizing on 365 days: 1.2282% x 365/91 = 4.93%. The 4.86% figure annualizes on 360 days (money market yield), and 4.73% merely converts the discount rate to a 365-day basis without using price as the base.

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