Treasury Bill Rate Calculator
Understanding Treasury Bills and Their Rates
Treasury Bills (T-Bills) are short-term debt instruments issued by the U.S. Department of the Treasury to finance government spending. They are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government. T-Bills are sold at a discount from their face value and do not pay interest periodically; instead, the investor receives the full face value at maturity.
How T-Bills Work
When you buy a T-Bill, you pay less than its face value (the amount it will be worth at maturity). The difference between the purchase price and the face value is your return. For example, if you buy a $10,000 T-Bill for $9,900, your profit at maturity will be $100.
T-Bills are typically issued with maturities of 4, 8, 13, 17, 26, and 52 weeks. They are highly liquid and can be bought and sold on the secondary market before maturity.
Key Rate Calculations
There are two primary ways to express the return on a Treasury Bill:
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Discount Rate (Bank Discount Yield): This is the traditional way T-Bill yields are quoted. It expresses the discount as a percentage of the face value, annualized on a 360-day year.
The formula for the Discount Rate is:
Discount Rate = ((Face Value - Purchase Price) / Face Value) * (360 / Days to Maturity) -
Investment Yield (Bond Equivalent Yield – BEY): This yield is more comparable to the yield on other interest-bearing investments, as it expresses the return as a percentage of the purchase price, annualized on a 365-day year. This makes it easier to compare T-Bills to bonds or other money market instruments.
The formula for the Investment Yield is:
Investment Yield = ((Face Value - Purchase Price) / Purchase Price) * (365 / Days to Maturity)
Using the Calculator
Our Treasury Bill Rate Calculator helps you quickly determine both the Discount Rate and the Investment Yield for a T-Bill. Simply input the following:
- Face Value ($): The amount the T-Bill will be worth at maturity (e.g., $10,000).
- Purchase Price ($): The price you paid for the T-Bill (this should be less than the face value).
- Days to Maturity: The number of days remaining until the T-Bill matures.
Click "Calculate Rates" to see the annualized Discount Rate and Investment Yield.
Example Scenario:
Imagine you purchase a T-Bill with a Face Value of $10,000 for a Purchase Price of $9,900, and it has 90 Days to Maturity.
- Face Value: $10,000
- Purchase Price: $9,900
- Days to Maturity: 90
Using the calculator, you would find:
- Discount Rate: Approximately 4.00%
- Investment Yield: Approximately 4.09%
This calculator is a valuable tool for investors looking to understand the true return on their Treasury Bill investments and compare them with other financial instruments.