Understanding Treasury Bills and Yield Calculation
Treasury Bills, or T-Bills, are short-term debt instruments issued by the U.S. Department of the Treasury. They are sold at a discount to their face value (par value) and mature at face value, with the difference representing the investor's earnings. T-Bills are considered one of the safest investments due to the backing of the U.S. government.
This calculator helps you determine the discount yield and the annualized yield of a T-Bill.
How it Works:
Face Value: The amount you will receive when the T-Bill matures. This is typically $100 or a multiple thereof, like $1,000.
Purchase Price: The price you pay today to acquire the T-Bill. This is usually less than the face value.
Days to Maturity: The number of days remaining until the T-Bill reaches its maturity date.
The Calculation:
The formula used to calculate the annualized yield of a T-Bill is as follows:
Discount Yield = ((Face Value - Purchase Price) / Face Value) * (360 / Days to Maturity) * 100
However, a more common and accurate representation of the return on investment, often referred to as the Bond Equivalent Yield (BEY) or simply the annualized yield, is calculated using the purchase price:
Annualized Yield (BEY) = ((Face Value - Purchase Price) / Purchase Price) * (365 / Days to Maturity) * 100
This calculator computes the Annualized Yield (BEY), which provides a more direct comparison to other interest-bearing investments. The 365-day convention is used for annualized yields.
Use Cases:
Investment Analysis: Evaluate the potential return on a T-Bill investment.
Comparison: Compare the yields of different T-Bill offerings or with other short-term investments.
Financial Planning: Incorporate T-Bill returns into personal or institutional financial models.
function calculateTBillYield() {
var faceValue = parseFloat(document.getElementById("faceValue").value);
var purchasePrice = parseFloat(document.getElementById("purchasePrice").value);
var daysToMaturity = parseFloat(document.getElementById("daysToMaturity").value);
var resultDisplay = document.querySelector("#result span");
// Input validation
if (isNaN(faceValue) || faceValue <= 0) {
resultDisplay.textContent = "Invalid Face Value";
return;
}
if (isNaN(purchasePrice) || purchasePrice <= 0) {
resultDisplay.textContent = "Invalid Purchase Price";
return;
}
if (isNaN(daysToMaturity) || daysToMaturity = faceValue) {
resultDisplay.textContent = "Purchase Price must be less than Face Value";
return;
}
// Calculate Annualized Yield (Bond Equivalent Yield)
var profit = faceValue – purchasePrice;
var annualizedYield = (profit / purchasePrice) * (365 / daysToMaturity) * 100;
// Format and display the result
resultDisplay.textContent = annualizedYield.toFixed(4) + "%";
}