Overview
A Treasury bill (Tbill) is a very shortterm security that trades at a discount and matures at par. No interest is paid in the interim. Instead, the return is generated from the difference between the purchase price and the sale price (if sold before maturity) or maturity value (if held to maturity). For tax purposes, the investor’s earnings from the Tbill are treated as interest income.
In this section, we will learn how to calculate the yield on a Treasury Bill using a simple formula.
The yield on a Tbill can be calculated using the following formula:
$$
\text{Yield} = \frac{(100  \text{Price}) \times 365}{\text{Price} \times \text{Term}} \times 100
$$
Where:
 Price is the purchase price of the Tbill.
 Term is the number of days to maturity.
 (100  Price): This part of the formula calculates the discount, which is the difference between the par (face) value of 100 and the price paid for the Tbill.
 365: This is the number of days in a year, used to annualize the yield.
 Price: The price paid for the Tbill.
 Term: The number of days remaining until the Tbill matures.
 100: This multiplication brings the result into a percentage format.
Example Calculation
Let’s calculate the yield on an 89day Tbill purchased for a price of 99.5.

Identify the values:
 Price = 99.5
 Term = 89 days

Apply the formula:
$$
\text{Yield} = \frac{(100  99.5) \times 365}{99.5 \times 89} \times 100
$$
$$
\text{Yield} = \frac{0.5 \times 365}{99.5 \times 89} \times 100
$$
$$
\text{Yield} = \frac{182.5}{8865.5} \times 100 \approx 2.061
$$
Thus, the yield is approximately 2.061%.
Frequently Asked Questions (FAQs)
1. What is a Treasury Bill (Tbill)?
A Treasury Bill, commonly referred to as a Tbill, is a shortterm government security that trades at a discount and matures at par value. It pays no periodic interest, with the investor’s return generated from the difference between the buying price and the value at maturity.
2. How are Tbill gains taxed?
Investors’ earnings from Tbills are treated as interest income for tax purposes.
The number 365 is used to annualize the yield, converting the return from the term of the bill to a yearly equivalent rate.
Key Takeaways
 Tbill yield calculation is essential for understanding the return on these shortterm investments.
 The formula for yield takes into account the difference between the purchase price and maturity value, annualized over the time to maturity.
 Yield on a Tbill is always represented as a percentage.
Glossary
 Tbill: Shortterm debt security issued by a government, traded at a discount to par value and redeemed at maturity for full face value.
 Yield: Earnings generated and realized on an investment over a particular period, expressed as a percentage of the investment’s cost.
 Par Value: The nominal or face value of a bond, share, or coupon as stated by the issuer.
Visual Representation
graph TD
A[Start] > B["Calculate Discount (100  Price)"]
B > C["Annualize (Multiply by 365)"]
C > D["Divide by (Price * Term)"]
D > E[Multiply by 100 to get percentage]
E > F[Yield]
Assess and Solidify Your Understanding
Welcome to the Knowledge Checkpoint! At the end of each chapter, you’ll find 10 carefully curated quizzes designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you’re on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey.
Good luck!
📚✨ Quiz Time! ✨📚
🧐 Assess and Solidify Your Understanding
Welcome to the Knowledge Checkpoint! You’ll find 10 carefully curated quizzes designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you’re on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨
Good luck! 🍀💪
## Which type of security is a Treasury bill (Tbill)?
 [x] A very shortterm security that trades at a discount and matures at par
 [ ] A longterm investment with periodic interest payments
 [ ] A mediumterm bond with variable interest rates
 [ ] A highyield bond with coupon payments
> **Explanation:** Tbills are shortterm securities that are sold at a discount and mature at face value. No periodic interest is paid; instead, the return is generated from the difference between the purchase price and the maturity value.
## How are earnings from Tbills treated for tax purposes?
 [ ] As capital gains
 [x] As interest income
 [ ] As dividend income
 [ ] As taxfree income
> **Explanation:** The earnings from Tbills are treated as interest income for tax purposes, which is the difference between the purchase price and the sale price (or maturity value).
## What is the formula used to calculate the yield on a Treasury bill?
 [ ] Yield = (Price  100) / Price * 365 / Term * 100
 [ ] Yield = (Price + 100) / 365 * Term * 100
 [x] Yield = (100  Price) / Price * 365 / Term * 100
 [ ] Yield = (Price  365) / Term * 100
> **Explanation:** The correct formula to calculate the yield on a Tbill is: Yield = (100  Price) / Price * 365 / Term * 100
## What is the yield on an 89day Tbill purchased at a price of 99.5?
 [ ] 1.950%
 [ ] 2.150%
 [x] 2.061%
 [ ] 2.250%
> **Explanation:** Using the formula: Yield = (100  99.5) / 99.5 * 365 / 89 * 100, the yield is calculated to be approximately 2.061%.
## Tbills trade at a discount and mature at par. What does this mean?
 [ ] They are purchased at a price higher than their face value and mature at the face value
 [x] They are purchased at a price lower than their face value and mature at the face value
 [ ] They are purchased at the face value and mature at a higher value
 [ ] They are purchased and sold at the same price
> **Explanation:** Tbills are bought at a discount to their face (or par) value and are redeemed at face value at maturity. The investor earns the difference.
## What is the term in the Tbill yield calculation formula referring to?
 [ ] The interest rate
 [ ] The maturity value
 [ ] The principal amount
 [x] The time period in days from purchase to maturity
> **Explanation:** In the Tbill yield calculation formula, the term refers to the number of days from the purchase date to the maturity date.
## The yield on a Tbill is classified as what kind of yield?
 [ ] Coupon yield
 [ ] Dividend yield
 [ ] Nominal yield
 [x] Discount yield
> **Explanation:** Since Tbills do not pay periodic interest but offer returns through the price discount, the yield is considered a discount yield.
## If a Tbill is sold before maturity, the yield is based on which prices?
 [ ] Purchase price and par value
 [ ] Maturity value and purchase price
 [ ] Par value and sale price
 [x] Purchase price and sale price
> **Explanation:** If a Tbill is sold before maturity, the yield is based on the difference between the purchase price and the sale price.
## Which of the following statements is false regarding Tbills?
 [ ] They are a form of shortterm debt
 [x] They provide regular interest payments
 [ ] They are considered lowrisk investments
 [ ] They have a finite maturity term
> **Explanation:** Tbills do not provide regular interest payments; returns are realized from the difference between the purchase price and the face value at maturity.
## The risk of a Treasury bill is typically considered:
 [ ] Very high
 [x] Very low
 [ ] Moderate
 [ ] High but mitigated by other factors
> **Explanation:** Tbills are considered very lowrisk investments due to their backing by the government and short maturity periods.
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