Treasury bills, notes and bonds?? please help?

am i doing this right..... if i invest $1000 in a treasury bill at a discount rate of 4.790% and the investment rate is 4.930%, then i will pay $952.10 to buy the bill and i will get $1049.30 when it matures?... therefore making a profit of $97.20

if thats not right please tell me how much i'll pay, and how much i'll get in return for a $1000 investment

thanks!!

Please remember that if he's buying a 6-month Treasury Bill at a 4.79 discount rate, the price would have to reflect that he's only lending the government the money for 6 months, not an entire year.


If I remember how to use a HP 12-C is, the purchase price at a yield of 4.93% would be 97.594. The TBILLYIELD function in Excel uses the formula:

TBY = (100-PR)/PR x 360/DSM, where DSM is the days to maturity (in this case I used180).

Based on what you wrote... it looks like you are considering a 6 mo T-Bill..and annualizing the return into the maturity price....

the way it works: You buy a T-Bill that matures in 6 months.
you pay 976.05. In 6 mo's they give you back $1,000.

(eggs below caught my mistake... i forgot to cut the discount in half to reflect only 1/2 year.... so my answer has been modified)

that works to a discount rate of 4.79
(1000* (1-(.0479/2)))=976.05

an investment of 976.05 that grows to 1,000 in 6 months would be an annual rate of 4.93%

you have to buy T-bills in 1,000 maturity value blocks... so using those numbers you can invest in muliples of $976.05

for example you can buy $39,042. maturity face value T-bills at an upfront cost of ... etc.

hope this helped.

You have it half correct. You do buy t-bills at a discount. The bills come in $1000 increments. When they come due, you receive $1000. You do buy them at a discount. $952.10 sounds about correct for a 6 mo bill. Treasury notes and bonds are sold differently. A $1000 note or $1000 bond sells for an issue price of $1000 normally. Actually it may sell at a slight discount or premium depending on the auction. You then receive interest payments twice a year. When the bond or note matures you receive $1000. Note: t-bills do not pay interest payments. The interest is imputed from the discount.

The formula, according to the treasury website is

Face value * 1 - (days * discount rate / 360). They give a specific example for 6 months that uses 182 days, not 180. So, using a 4.79% discount rate on a six month bond as an example, what you would pay is $1,000 * (1 - (.0479 * 182 / 360)) or $975.78. You'd get $1,000 26 weeks later. The $24.22 difference would be the interest. Investment rate on this issue would be (interest / price * days in the year / days the bill is issued for. So for the above issue, it would be $24.22 / $975.58 * 365/182, or about 4.98%. It looks like the issue you are quoting is somewhere close to a three month issue (maybe a little longer). The first link links to the discount rate calculation, the second links to the investment rate calculation.

Other part of your question...treasury bills are one year or less, treasury notes are 2-10 years, treasury bonds are longer than 10 years. Treasury bills don't pay formal interest...the interest is built into the discount. Notes and bonds pay interest every six months.