CFA Level I · CFA Level I Exam · Working Capital and Liquidity
A company buys a 180-day Treasury bill with a face value of $1,000,000 for $985,000. Using a 365-day year, the bond-equivalent yield is closest to:
The bond-equivalent yield is about 3.09%. The holding period yield is 15,000 divided by 985,000, or 1.523%, and multiplying by 365/180 annualizes it. Using face value as the base or skipping annualization gives the wrong figures.
- A1.52%
- B3.05%
- C3.09%Correct
Explanation
Holding period yield = 15,000/985,000 = 1.5228%. Annualizing on a 365-day basis: 1.5228% × 365/180 = 3.088%, about 3.09%. The 3.05% option comes from using the discount (face-value base) and 360 days, and 1.52% is not annualized.
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