T-Bill investment calculator • 2026 rates
\( \text{Discount Yield} = \frac{\text{Face Value} - \text{Purchase Price}}{\text{Face Value}} \times \frac{360}{\text{Days to Maturity}} \)
Where:
Actual Yield: \( \text{Yield} = \frac{\text{Face Value} - \text{Purchase Price}}{\text{Purchase Price}} \times \frac{365}{\text{Days to Maturity}} \)
Treasury Bills are zero-coupon bonds sold at a discount. Investors earn by receiving face value at maturity. The discount represents the interest earned over the holding period.
Example: A 180-day T-Bill with $10,000 face value purchased for $9,800:
Discount Yield = \(\frac{10,000 - 9,800}{10,000} \times \frac{360}{180} = 0.02 \times 2 = 4.0\%\)
Actual Yield = \(\frac{10,000 - 9,800}{9,800} \times \frac{365}{180} = 0.0204 \times 2.028 = 4.14\%\)
Treasury Bills are considered one of the safest investments as they are backed by the full faith and credit of the U.S. government. They offer liquidity, as they can be easily bought and sold in the secondary market. However, returns are typically lower than other investments due to their safety.
For a $10,000 investment with a 4.0% discount rate over 182 days: $200 interest earned.
| Investment | Return | Yield | After-Tax | Real Yield |
|---|---|---|---|---|
| T-Bill (26 Week) | $200 | 4.14% | $156 | 1.14% |
| Savings Account | $100 | 2.00% | $78 | -1.00% |
| CD (1 Year) | $150 | 3.00% | $117 | 0.00% |
| Money Market | $120 | 2.40% | $94 | -0.60% |
Treasury Bills (T-Bills) are short-term debt obligations issued by the U.S. government with maturities ranging from a few days to 52 weeks. They are sold at a discount from their face value and mature at par value, with the difference representing the investor's interest earnings.
The yield on Treasury Bills is calculated using two methods:
Where:
Treasury Bills have several distinctive features:
Short-term government debt sold at discount with maturity at par value.
Discount Yield: \( \frac{FV - PP}{FV} \times \frac{360}{DM} \)
Actual Yield: \( \frac{FV - PP}{PP} \times \frac{365}{DM} \)
Staggering maturity dates for consistent cash flow.
Backed by U.S. government, virtually risk-free investment.
Easily bought and sold in active secondary markets.
Exempt from state and local income taxes.
Multiple maturity options from 28 days to 52 weeks.
What is the maximum maturity period for Treasury Bills?
The answer is D) 52 weeks. Treasury Bills have maximum maturity periods of 52 weeks (364 days). They are issued with maturities of 4, 8, 13, 26, and 52 weeks.
T-Bills are classified as short-term securities with maturities up to one year. The 52-week T-Bill is the longest-term instrument in the T-Bill family, offering investors exposure to longer-term rates while maintaining the characteristics of Treasury securities.
Treasury Bill (T-Bill): Short-term government debt obligation
Maturity Period: Time until security reaches full value
Zero-Coupon: No periodic interest payments
• Maximum maturity is 52 weeks
• Minimum denomination is $100
• Sold at discount to face value
• 52-week bills offer highest yields in T-Bill family
• Consider laddering for consistent maturity
• Compare to other short-term instruments
• Confusing with Treasury Notes or Bonds
• Assuming they pay periodic interest
• Not understanding discount pricing
Calculate the discount yield for a $10,000 T-Bill purchased for $9,900 with 91 days to maturity. Show your work.
Discount Yield Formula: \( \frac{\text{Face Value} - \text{Purchase Price}}{\text{Face Value}} \times \frac{360}{\text{Days to Maturity}} \)
Given:
Step 1: Calculate discount = $10,000 - $9,900 = $100
Step 2: Calculate ratio = $100 ÷ $10,000 = 0.01
Step 3: Calculate time factor = 360 ÷ 91 = 3.956
Step 4: Calculate discount yield = 0.01 × 3.956 = 0.03956 = 3.96%
The discount yield is 3.96%.
The discount yield calculation uses a 360-day year convention, which simplifies calculations but can slightly understate the actual return. This method is standard for T-Bills and other money market instruments.
Discount Yield: Annualized return based on face value
360-Day Convention: Financial industry standard for short-term rates
Face Value: Amount received at maturity
• Discount yield uses face value as denominator
• Uses 360-day year convention
• Understates actual return slightly
• Remember: discount yield < actual yield
• Use 360-day convention for T-Bills
• Check if 365-day basis is needed
• Using purchase price instead of face value
• Using 365-day year instead of 360
• Confusing with actual yield calculation
A 182-day T-Bill with $5,000 face value is purchased at a discount rate of 3.5%. What is the purchase price? How does this compare to a 6-month CD earning 3.0% simple interest?
Step 1: Calculate discount amount
Discount = Face Value × Discount Rate × (Days to Maturity/360)
Discount = $5,000 × 0.035 × (182/360) = $5,000 × 0.035 × 0.5056 = $88.47
Step 2: Calculate purchase price
Purchase Price = Face Value - Discount = $5,000 - $88.47 = $4,911.53
Step 3: Compare to CD
CD Interest = $5,000 × 0.03 × (182/365) = $74.79
T-Bill Return = $5,000 - $4,911.53 = $88.47
The T-Bill provides $13.68 more return than the CD over the same period.
This comparison highlights how T-Bills can provide better returns than traditional bank deposits for similar timeframes, especially when interest rates are favorable. The T-Bill's discount structure often results in slightly higher effective yields than simple interest instruments.
Discount Pricing: Purchase below face value
Simple Interest: Interest calculated on principal only
Effective Yield: Actual return on investment
• T-Bills priced at discount to face value
• Compare effective yields for accurate assessment
• Consider tax implications in comparisons
• T-Bills often offer better yields than CDs
• Consider federal tax implications
• State tax advantage for T-Bills
• Not accounting for tax advantages of T-Bills
• Confusing discount rate with yield
• Not using correct day-count convention
An investor wants to invest $50,000 in a 13-week T-Bill ladder, purchasing bills every 4 weeks. How many bills will they purchase, and what will be the approximate total return over one year assuming a constant 4.0% discount rate?
Step 1: Calculate number of bills
One year = 52 weeks
Frequency = every 4 weeks
Number of bills = 52 ÷ 4 = 13 bills
Step 2: Calculate investment per bill
Investment per bill = $50,000 ÷ 13 = $3,846.15
Step 3: Calculate return per bill
For 13-week (91-day) T-Bill at 4.0% discount:
Discount = $3,846.15 × 0.04 × (91/360) = $38.85
Step 4: Calculate total annual return
With 13 bills maturing throughout the year, total return ≈ $38.85 × 13 = $505.05
The investor will purchase 13 bills and earn approximately $505.05 in returns.
Laddering provides regular cash flows and allows reinvestment at current rates. This strategy balances liquidity needs with the desire to capture higher yields available on longer-term instruments while maintaining regular maturity dates.
Laddering: Investing in securities with staggered maturities
Cash Flow: Regular receipt of principal and interest
Reinvestment Risk: Risk that proceeds will be reinvested at lower rates
• Laddering provides regular maturities
• Allows reinvestment at current rates
• Balances liquidity and yield
• Match ladder frequency to cash needs
• Consider rate environment when structuring
• Diversify across different maturity periods
• Not considering reinvestment timing
• Concentrating too much in one maturity
• Not accounting for changing rates
Which of the following statements about Treasury Bill taxation is correct?
The answer is C) Exempt from state and local income tax. Treasury Bills are subject to federal income tax on the interest earned, but they are exempt from state and local income taxes, making them attractive to investors in high-tax states.
The tax treatment of Treasury securities is a significant advantage for investors in high-income tax states. While federal taxes still apply, the exemption from state and local taxes can make the after-tax yield more favorable compared to taxable alternatives.
Tax-Exempt: Not subject to certain levels of taxation
After-Tax Yield: Return after accounting for applicable taxes
State Income Tax: Tax collected by state governments
• Federal tax applies to T-Bill interest
• State and local tax exempt
• Consider tax-equivalent yield in comparisons
• Calculate tax-equivalent yield for comparisons
• Consider in high-tax states
• Factor into overall portfolio allocation
• Assuming T-Bills are completely tax-free
• Not accounting for federal tax liability
• Forgetting tax advantage in comparisons
Q: How do Treasury Bills differ from other Treasury securities?
A: Treasury securities differ by maturity and interest payment structure:
For example, a 6-month T-Bill with $10,000 face value purchased for $9,900 earns $100 at maturity. A 5-year T-Note with $10,000 face value and 3% coupon pays $150 semi-annually plus principal at maturity.
Q: Are Treasury Bills a good investment for emergency funds?
A: T-Bills can be suitable for emergency funds with considerations:
For emergency funds, consider a combination: 70% in high-yield savings for immediate access, 30% in short-term T-Bills for slightly higher returns. This balances accessibility with yield.