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T-Bill Price Formula:
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The T-Bill price calculation determines the purchase price of a Treasury Bill based on its face value, interest rate, and time to maturity. Treasury Bills are short-term government securities that are sold at a discount and mature at face value.
The calculator uses the T-Bill price formula:
Where:
Explanation: The formula calculates the present value of the T-Bill using the bank discount method with a 360-day year convention.
Details: Accurate T-Bill price calculation is essential for investors to determine the appropriate purchase price, calculate yields, and make informed investment decisions in government securities.
Tips: Enter the face value in currency units, the annual interest rate as a percentage, and the time to maturity in days. All values must be positive numbers.
Q1: What is a Treasury Bill?
A: A Treasury Bill (T-Bill) is a short-term U.S. government debt obligation with a maturity of one year or less, sold at a discount to face value.
Q2: Why use a 360-day year in the calculation?
A: The bank discount method conventionally uses a 360-day year for simplicity in interest calculations for short-term instruments.
Q3: How does the interest rate affect the T-Bill price?
A: Higher interest rates result in lower T-Bill prices, while lower rates result in higher prices, maintaining the inverse relationship between interest rates and bond prices.
Q4: What's the difference between price and yield?
A: Price is what you pay for the T-Bill, while yield represents the return on investment, calculated based on the discount from face value.
Q5: Are T-Bills risk-free investments?
A: T-Bills are considered among the safest investments since they're backed by the full faith and credit of the U.S. government, though they're subject to interest rate risk.