How Does the Method for Determining Treasury Bill Yields Differ

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The Answer is Bill yields are determined by the bank discount method, which does not compound interest rates and uses a 360-day year for simplicity.
In contrast, the calculation of yields on most bonds compound interest and use a 365-day year. So, to make realistic comparison with other securities, bill yields must be converted to an investment (bond- or coupon-equivalent) yield.
The investment yield or rate (IR) on T-bills
= Par value - Purchase price ´ 365 . Purchase price Days to maturity
Because of the compounding of interest and the use of a 365-day year, the investment yield (IR) on a bill is always higher than its discount rate (DR).

How Does the Method for Determining Treasury Bill Yields Differ

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How Does the Method for Determining Treasury Bill Yields Differ

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Correct Answer:
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