3-Month Treasury Bill Rate Calculator
Understanding the 3-Month Treasury Bill Rate
Treasury Bills, often called T-bills, are short-term debt obligations issued by the U.S. Department of the Treasury. They are sold at a discount from their face value (par value) and pay the face value upon maturity. T-bills are considered one of the safest investments in the world because they are backed by the full faith and credit of the U.S. government. The 3-month T-bill is a popular benchmark for short-term interest rates.
How the 3-Month Treasury Bill Rate is Calculated
The annual discount rate of a T-bill is often quoted, but the actual yield to the investor is more important. This yield reflects the true return on investment. The formula to calculate the investment yield (or coupon equivalent yield) of a T-bill is as follows:
Investment Yield = [(Par Value – Purchase Price) / Purchase Price] * (365 / Days to Maturity)
This formula annualizes the return based on the difference between what you paid for the bill and its face value, scaled over the number of days until it matures. A higher purchase price relative to the par value will result in a lower yield, and vice versa.
Example Calculation:
Let's say you purchase a 3-month Treasury Bill with a Par Value of $1,000 for $995.00, and it has 91 days until maturity.
- Par Value = $1,000
- Purchase Price = $995.00
- Days to Maturity = 91
Using the formula:
Investment Yield = [($1,000 – $995.00) / $995.00] * (365 / 91)
Investment Yield = [$5.00 / $995.00] * (365 / 91)
Investment Yield = 0.0050251256 * 4.010989
Investment Yield ≈ 0.020157 or 2.02%
In this scenario, the annualized yield for the 3-month Treasury Bill is approximately 2.02%.
Understanding this calculation helps investors assess the short-term returns offered by T-bills and compare them to other short-term investment options.