Compute the specified quantity. Round all answers to the...

Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest $0.001 \%$, as appropriate. Treasury Bills In December 2008 (in the midst of the financial crisis) a \15,000 3-month T-bill was selling at a discount rate of only $0.06 \% .{ }^{2}$ What was its simple annual yield?

Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest $0.001 \%$, as appropriate.
Treasury Bills In December 2008 (in the midst of the financial crisis) a \15,000 3-month T-bill was selling at a discount rate of only $0.06 \% .{ }^{2}$ What was its simple annual yield?

Key Concepts

Treasury Bills

Treasury bills are short-term government debt securities that are issued at a discount from their par (face) value and do not pay periodic interest. Instead, investors purchase them for less than their face value and receive the full face value at maturity, with the difference representing the investor’s return. These instruments are widely used for managing short-term liquidity and are considered extremely low risk.

Discount Rate

The discount rate is the percentage used to determine the purchase price of a treasury bill relative to its par value. It represents the investor’s return in terms of a discount off the face value and is typically calculated on an annualized basis using a specified day count convention (often 360 days for T-bills). This rate is distinct from the yield received on the actual investment as it does not directly account for the purchase price and reinvestment possibilities.

Simple Annual Yield

The simple annual yield is a measure of the return on an investment, annualized on a simple interest basis rather than through compounding. For treasury bills, it is calculated by first finding the difference between the face value and the purchase price, dividing by the purchase price to determine the return over the bill’s term, and then annualizing this return by scaling for a full year. This concept is essential for comparing yields on short-term instruments to other annualized rates.

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