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Pricing Money Market Securities - Finance - Lecture Slides, Slides of Finance

This lecture is from Finance. Key important points are: Pricing Money Market Securities, Treasury Bills, Obligations of Government, Discount and Mature, Issue Price, Tax Purposes, Calculate the Price, Solving for Yield, Market Price, Days to Maturity

Typology: Slides

2012/2013

Uploaded on 01/29/2013

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Pricing Money Market Securities
Treasury Bills
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Pricing Money Market Securities

– Treasury Bills

Treasury Bills

  • Short-term obligations of government with an initial

term to maturity of one year or less

  • Issued at a discount & mature at face value
  • The difference between the issue price and the face

value is treated as interest income (for tax purposes in

Canada)

  • To calculate the price of a T bill, use the following

formula:

1

T Bill

F P n BEY B

=  

  • (^)    

Pricing Treasury Bills

Where: P = market price of the T Bill F = face value of the T Bill BEY = the bond equivalent yield n = the number of days until maturity B = the annual basis (365 days in Canada)

Solving for Yield on a T Bill

  • To solve for the yield on a T bill, rearrange the previous

formula and solve for BEY.

  • Example : What is the yield on a $100,000 T bill with 180

days to maturity and a market price of $98,200?

F P B

BEY

P n

Pricing Treasury Bills