Treasury bills are short-term debt securities issued by the federal government. Calculating the investment return on a Treasury bill must take into account a couple of features particular to T-bills. First, Treasury bills are sold at a discount to the face value, and the interest to be earned is the amount of the discount. Second, T-bills have a maturity of 52 weeks or less, so the investment yield must be converted to an annual rate.

1. Write down the purchase price, purchase date and maturity date of the Treasury bills. As an example, a 26-week T-bill is purchase at auction for issue on Nov. 1 and matures on May 31. The T-bill price is 97.505083.

2. Calculate the number of days from the purchase or issue date until the maturity date. Number of days can be determined by subtracting the two dates using a spreadsheet program or grabbing a calendar and counting days. In the example, issue and maturity are 182 days apart.

3. Subtract the T-bill price from 100, then divide the result by the price to calculate the raw yield. In the example, 100 minus 97.505083 equals 2.494917. That number divided by 97.505083 equals 0.02558756.

4. Multiply the previous result times 365 and divide by the number of days for the T-bill to mature. In the example, 0.02558756 times 365 divided by 182 equals 0.051316.

5. Multiply the result by 100 to to convert to an annual investment return and round to an acceptable number of decimals. The example T-bill has an annual yield of 5.13 percent.

#### Tips

- The price of a Treasury bill is the percentage of the face value. In the example, a $100,000 bill would cost $97,050.83.
- Treasury bills are often quoted at an annual discount rate, which is based on the maturity value of a bond and under states the investment yield.