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The discount yield of a 3-month T-bill with a face value of $1,000 is 5%
The discount yield of a 3-month T-bill with a face value of $1,000 is 5%. What is its price?
Question 1 options:
$987.36
$989.52
$992.73
$995.81
Expert Solution
Computation of Price of Bond using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of Bond = ?
Rate = 5%/12 = 0.416667% compounded monthly
Nper = 3 months
PMT = 0
FV = $1,000
Substituting the values in formula:
=-pv(0.416667%,3,0,1000)
PV or Price of Bond = $987.60
So, price of bond is $987.60 which is nearest to $987.36 So, the correct option is 1st "$987.36".
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