How Do T Bills Work Calculator

Treasury Bill Yield Formula:

\[ Yield = \frac{(Face\ Value - Purchase\ Price)}{Purchase\ Price} \times \left(\frac{360}{Days\ to\ Maturity}\right) \]

T-Bill Yield:

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1. What is a Treasury Bill (T-Bill)?

A Treasury Bill (T-Bill) is a short-term U.S. government debt obligation with a maturity of one year or less. T-Bills are sold at a discount to face value and don't pay periodic interest, with the profit being the difference between purchase price and face value at maturity.

2. How Does the T-Bill Yield Calculator Work?

The calculator uses the T-Bill yield formula:

\[ Yield = \frac{(Face\ Value - Purchase\ Price)}{Purchase\ Price} \times \left(\frac{360}{Days\ to\ Maturity}\right) \]

Where:

$ Face\ Value $ — The amount paid at maturity (typically $1,000, $5,000, etc.)
$ Purchase\ Price $ — The price paid for the T-Bill
$ Days\ to\ Maturity $ — Number of days until the T-Bill matures
$ 360 $ — Standard number of days used in T-Bill calculations

Explanation: The formula calculates the annualized yield based on the discount and time to maturity.

3. Importance of T-Bill Yield Calculation

Details: Calculating T-Bill yield helps investors compare returns across different T-Bills and with other short-term investments. It's essential for understanding the true return on these risk-free securities.

4. Using the Calculator

Tips: Enter the face value (typically $1,000), the purchase price (what you paid), and days to maturity (28, 91, 182, or 364 days for standard T-Bills). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is 360 days used instead of 365?
A: The financial industry traditionally uses a 360-day year for T-Bill calculations to simplify comparisons between different instruments.

Q2: How often are T-Bills issued?
A: 4-week, 8-week, 13-week, 26-week, and 52-week T-Bills are auctioned weekly or monthly by the U.S. Treasury.

Q3: What's the minimum investment for T-Bills?
A: The minimum purchase is $100, with increments of $100 above that amount.

Q4: Are T-Bill yields taxable?
A: Yes, the difference between purchase price and face value is taxable as interest income at the federal level, but exempt from state and local taxes.

Q5: How does this compare to the bond equivalent yield?
A: The bond equivalent yield uses 365 days and is slightly different. This calculator shows the discount yield quoted by the Treasury.