Calculator For Treasury Bills

Treasury Bill Price Formula:

\[ Price = Face\ Value \times (1 - \frac{Discount\ Rate \times Days}{360}) \]

Price (dollars):

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1. What Are Treasury Bills?

Treasury Bills (T-Bills) are short-term debt obligations issued by the U.S. government with maturities ranging from a few days to 52 weeks. They are sold at a discount to face value and do not pay periodic interest.

2. How Does the Calculator Work?

The calculator uses the T-Bill pricing formula:

\[ Price = Face\ Value \times (1 - \frac{Discount\ Rate \times Days}{360}) \]

Where:

\( Face\ Value \) — The maturity value of the T-Bill (dollars)
\( Discount\ Rate \) — The annualized discount rate (percentage)
\( Days \) — The number of days until maturity (days)

Explanation: This formula calculates the purchase price of a T-Bill based on its face value, discount rate, and time to maturity using a 360-day year convention.

3. Importance of T-Bill Pricing

Details: Accurate T-Bill pricing is essential for investors to determine the true yield and return on investment. It helps in comparing different T-Bill offerings and making informed investment decisions.

4. Using the Calculator

Tips: Enter the face value in dollars, discount rate as a percentage, and days to maturity. All values must be valid (face value > 0, discount rate between 0-100%, days between 1-360).

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between discount rate and yield?
A: The discount rate is used to calculate the purchase price, while the yield represents the actual return on investment. Yield is typically higher than the discount rate.

Q2: Why use a 360-day year instead of 365?
A: The financial industry commonly uses a 360-day year for simplicity in interest calculations, known as the "banker's year" convention.

Q3: What are typical T-Bill maturities?
A: T-Bills are commonly issued with maturities of 4, 8, 13, 26, and 52 weeks.

Q4: Are T-Bills risk-free?
A: T-Bills are considered among the safest investments since they are backed by the full faith and credit of the U.S. government.

Q5: How are T-Bill returns taxed?
A: The difference between the purchase price and face value is treated as interest income and is subject to federal income tax, but exempt from state and local taxes.