In a T-bill HPY is computed on the basis of [...], not [...]
Answer
purchase price
face value.
Tags
#reading-7-discounted-cashflows-applications
Question
In a T-bill HPY is computed on the basis of [...], not [...]
Answer
?
Tags
#reading-7-discounted-cashflows-applications
Question
In a T-bill HPY is computed on the basis of [...], not [...]
Answer
purchase price
face value.
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Subject 4. Different Yield Measures of a U.S. Treasury Bill instrument at its maturity D 1 = the cash distribution paid by the instrument at its maturity (that is, interest).
Since a pure discount instrument (e.g., a T-bill) makes no interest payment, its HPY is (P 1 - P 0 )/P 0 .
<span>Note that HPY is computed on the basis of purchase price, not face value. It is not an annualized yield.
The effective annual yield is the annualized HPY on the basis of a 365-day year. It incorporates the effect of compounding interest.
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