1. What is T-Bill Interest Calculation?

T-Bill (Treasury Bill) interest is calculated using the bank discount method which uses a 360-day year. This calculation helps investors understand the return on their T-Bill investments.

2. How Does the Calculator Work?

The calculator uses the T-Bill interest formula:

Where:

• \( Face\ Value \) — The amount to be received at maturity ($)
• \( Yield \) — The discount rate (in decimal form)
• \( Days \) — Days to maturity (using 360-day year)

Explanation: The formula calculates the interest earned based on the face value, annual yield, and the holding period of the T-Bill.

3. Importance of T-Bill Interest Calculation

Details: Accurate interest calculation is crucial for comparing investment returns, financial planning, and understanding the true yield of T-Bills.

4. Using the Calculator

Tips: Enter face value in dollars, yield as a decimal (e.g., 0.05 for 5%), and days to maturity. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why use 360 days instead of 365?
A: The bank discount method traditionally uses a 360-day year for simplicity in calculations.

Q2: How is this different from bond interest?
A: T-Bills are zero-coupon instruments sold at discount, while bonds typically pay periodic interest.

Q3: What are typical T-Bill maturities?
A: Common maturities are 4-week, 8-week, 13-week (3-month), 26-week (6-month), and 52-week (1-year).

Q4: Are T-Bill interest rates annualized?
A: Yes, the yield is an annual rate, which is why we prorate it based on days to maturity.

Q5: How does this relate to the purchase price?
A: The purchase price equals face value minus the calculated interest.