Question

Suppose an investor sold a T-Bill with 45 days to maturity at a discount basis of 3.73%. He had purchased it with 90 days to maturity and earned a holding period return of 4.24%. What is the BDY of the purchase price?

Answer 1

Bank Discount Yield(BDY) is the rate of return is earned on the bank discount for specific period in days.The yield is calculated by taking the 360 days in a year. It is calculated by taking the difference between the face and purchase price divided by the face value.

Bank discount yield (BDY) is calculated by using the following formula :- Benk discount yield (RDY)=F-x 360 a face Yalue (per Xalue) pa purchase price t - Number of days between the issue date and maturity date Note: Boy is heute calculated for 360 days Face value (F) = $100 purchase price ip) - $ 100 – 3.73Cdiscount) = $96.22 period in days (t) = 45 Bank discount yield CBDY)= F-Px 360 = 100-96.27, 360 100 45 = 29.84% Bank discount yield (RDY) ts 29.847