Yield on treasury bills, Financial Management

Assignment Help:

Treasury Bills, popularly known as T-bills, are issued in India by the RBI on behalf of the Government of India. T-bills are short-term securities with a maturity of 91,182 and 364 days. These are issued at a discount and are redeemed at par. Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs.25,000. The yield on T-bills is calculated on discount basis. We can determine the yield on T-bills with the help of the following formula:

         d = (1 - p) (360 / NSM)                                                                                                    

Where,

         d          =     Yield on a discount basis.

         p          =     Settlement price per Rs.1 of maturity value.

         NSM        =     Number of days to maturity i.e., difference between the maturity date and the

settlement date.

To understand it better, let us assume a treasury bill with settlement date of 05/01/2007. The maturity period of the bill is 15/05/2007 and at a price of 0.98794893. The number of days from the settlement date to the maturity date is 130. So, the yield on a discount basis is,

         d = (1 - 0.98794893) (360/130) = 3.34%

Once the yield on discount basis is determined, we can calculate the price of a bill (per Rs.1 of maturity value) with the help of the following formula:

         p = 1 - d (NSM /360)                                                                                                        

         p = 1 - 0.0334 (130/360) = 0.98794893.


Related Discussions:- Yield on treasury bills

Characteristics of hedge funds, Characteristics of Hedge Funds Hedge Fu...

Characteristics of Hedge Funds Hedge Funds are commonly referred to as "absolute return strategies", which means that many are designed to seek positive returns in most market

Merits and demerits of accept-reject criteria, Q. Merits of accept-reject c...

Q. Merits of accept-reject criteria? Merits of ARR:- (i) Simple: - ARR method is very simple to understand and use. (ii) Complete life time of the project is considered:

Analyse the characteristics of good governance, Question 1: "Good Gover...

Question 1: "Good Governance is an ideal. To ensure sustainable development, actions must be taken to work towards this ideal with the aim of making it a reality." With ref

Put, Put This is an agreement which is allowing a holder of privacies t...

Put This is an agreement which is allowing a holder of privacies to sell them back to the issuer at a specified amount during a specified time interval. This technique protects

Facts about mortgages, Lenders in the US insist upon ...

Lenders in the US insist upon some kind of mortgage insurance. There are broadly two types of mortgage insurance - one is

Miller-Orr model, Beta plc sets its minimum cash balance as $1,000.00 & eas...

Beta plc sets its minimum cash balance as $1,000.00 & eastimates the following transaction cost sale/purchase =$12 standrsa deviation =$1,200 per day Interest rate =14.6% p.a or 0

Components of working capital, Examine the components of working capital & ...

Examine the components of working capital & also explain the concepts of working capital.

Financial market, Financial Market: Being entrusted with different func...

Financial Market: Being entrusted with different functions having macro level implications on the nation's economy, the financial system tries to fulfill its role through the f

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd