1. What is the T-Bill Discount Rate?

The Treasury bill discount rate represents the annualized return based on the difference between the face value and purchase price of a T-bill. It's a standard method for quoting T-bill yields in the money markets.

2. How Does the Calculator Work?

The calculator uses the T-bill discount rate formula:

Where:

• \( Face \) — Face value of the T-bill (USD)
• \( Price \) — Purchase price of the T-bill (USD)
• \( Maturity Days \) — Days until maturity (actual days)

Explanation: The equation calculates the discount yield as a percentage of face value, annualized using a 360-day year (bank convention).

3. Importance of Discount Rate Calculation

Details: The discount rate allows investors to compare returns on T-bills with different maturities and prices. It's essential for evaluating short-term investment opportunities and understanding money market yields.

4. Using the Calculator

Tips: Enter the face value (typically $1,000, $10,000, etc.), the purchase price (must be less than face value), and the exact number of days until maturity. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why use 360 days instead of 365?
A: The money market traditionally uses a 360-day year for simplicity in calculations, following bank convention.

Q2: What's the difference between discount rate and investment yield?
A: The investment yield (bond equivalent yield) uses 365 days and calculates return based on purchase price rather than face value.

Q3: What are typical T-bill maturities?
A: Common maturities are 4-week (28 days), 13-week (91 days), 26-week (182 days), and 52-week (364 days).

Q4: Can the discount rate be negative?
A: No, since price must be less than face value for T-bills, the discount rate is always positive.

Q5: How accurate is this calculation?
A: This gives the standard discount rate quoted in financial markets. For precise investment decisions, consult your broker's exact calculations.