Treasury Bill Yield Calculator
How to Calculate Treasury Bill Rates
Treasury Bills (T-Bills) are short-term debt obligations issued by the government. Unlike traditional bonds, T-Bills do not pay regular interest. Instead, they are sold at a discount to their Face Value (Par Value). Your profit is the difference between what you paid and the face value you receive at maturity.
1. The Bank Discount Rate Formula
The Discount Rate is the annualized return based on the face value of the bill, traditionally using a 360-day year (twelve 30-day months). This is the rate often quoted in financial news.
Formula: ((Face Value - Purchase Price) / Face Value) × (360 / Days to Maturity)
2. Bond Equivalent Yield (BEY)
Because the Discount Rate uses the Face Value and a 360-day year, it often understates the true return. The Bond Equivalent Yield (BEY) uses the actual Purchase Price (your actual investment) and a 365-day year, making it easier to compare with other investments.
Formula: ((Face Value - Purchase Price) / Purchase Price) × (365 / Days to Maturity)
Realistic Example:
Suppose you buy a $1,000 T-Bill for $985 with 91 days remaining until maturity.
- Discount Amount: $1,000 – $985 = $15
- Bank Discount Rate: ($15 / $1,000) × (360 / 91) = 5.93%
- Bond Equivalent Yield: ($15 / $985) × (365 / 91) = 6.11%
Why the Two Rates Differ
The Bond Equivalent Yield is almost always higher than the Bank Discount Rate for two reasons: it uses 365 days instead of 360, and it calculates the return based on the lower amount you actually paid (the discount price) rather than the face value you will eventually receive.