How to Calculate a Payment on a T-Bill

by Michael Keenan

Treasury bills, or T-bills for short, are issued by the U.S. government. T-bills do not make periodic interest payments. Instead, you receive the par value, also called the face value, of the bond when it matures. For example, you might purchase a T-bill that matures in 26 weeks and has a face value of $1,000 for $984. In 26 weeks, you would receive your $1,000 check, but you have to calculate the interest rate on the payment. The interest rate depends on the amount you pay, the par value and the time you have to wait until the bond matures.

1. Subtract the price you paid for the T-bill from the par value to find the interest paid to you at maturity. For example, if you paid $984 and the par value equals $1,000, you earn $16 of interest.

2. Divide the interest earned by the face value. In this example, divide $16 by $1,000 to get 0.016.

3. Multiply the result by 365, the number of days per year. In this example, multiply 0.016 by 365 to get 5.84.

4. Divide the result by the number of days you held the T-bill. In this example, divide 5.84 by 182, the number of days in 26 weeks, to get 0.032.

5. Multiply the result by 100 to calculate the annualized interest rate on your T-bill payment. Finishing the example, multiply 0.032 by 100 to find the annualized interest rate on the T-bill payment equals 3.2 percent.

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