1215

A Treasury bill, with 80 days until maturity, has an effective annual yield of 8%. Its holding period yield is closest to:

A) 1.72%.

B) 1.75%.

C) 1.70%.

---

The effective annual yield (EAY) is equal to the annualized holding period yield (HPY) based on a 365-day year. EAY = (1 + HPY)^365/t ? 1. HPY = (EAY + 1)^t/365 ? 1 = (1.08)^80/365 ? 1 = 1.70%.

1215

The holding period yield for a T-Bill maturing in 110 days is 1.90%. What are the equivalent annual yield (EAY) and the money market yield (MMY) respectively?

A) 6.90%; 6.80%.

B) 6.44%; 6.22%.

C) 5.25%; 5.59%.

---

The EAY takes the holding period yield and annualizes it based on a 365-day year accounting for compounding. (1 + 0.0190)^365/110 ? 1 = 1.06444 ? 1 = 6.44%. Using the HPY to compute the money market yield = HPY × (360 / t) = 0.0190 × (360 / 110) = 0.06218 = 6.22%.