Which yield is usually greater for a T-bill?

Which yield is usually greater for a T-bill?

• A. Discounted yield
• B. Bond equivalent yield
• C. Coupon yield
• D. Nominal yield

Answer: (B)

The bond equivalent yield is typically greater for a T-bill because it represents an annualized yield that accounts for the compounding effect of the discount at which the T-bill is sold. T-bills are sold at a discount to their face value, and the yield is calculated based on the difference between the purchase price and the face value at maturity. The bond equivalent yield adjusts the T-bill's yield to a more comparable annualized figure, assuming a 365-day year, which provides a more accurate reflection of the investment’s return over an annual period. This adjustment leads to a higher yield measurement compared to the other yield calculations, such as the discounted yield, which does not account for compounding and is typically lower. In contrast, the coupon yield and nominal yield pertain to bonds that pay periodic interest, which means they do not apply to T-bills that do not have coupon payments and thus have a different yield structure.

The bond equivalent yield is typically greater for a T-bill because it represents an annualized yield that accounts for the compounding effect of the discount at which the T-bill is sold. T-bills are sold at a discount to their face value, and the yield is calculated based on the difference between the purchase price and the face value at maturity.

The bond equivalent yield adjusts the T-bill's yield to a more comparable annualized figure, assuming a 365-day year, which provides a more accurate reflection of the investment’s return over an annual period. This adjustment leads to a higher yield measurement compared to the other yield calculations, such as the discounted yield, which does not account for compounding and is typically lower.

In contrast, the coupon yield and nominal yield pertain to bonds that pay periodic interest, which means they do not apply to T-bills that do not have coupon payments and thus have a different yield structure.