A T-bill, or Treasury bill, is a short-term debt obligation issued by the US government with a maturity period of one year or less. It is considered a safe and low-risk investment option.
The price of a T-bill is determined through an auction process where investors bid on the bill. The highest bidding price is then used to set the price for all investors. This price is typically lower than the face value of the T-bill, allowing investors to earn a profit when the bill matures.
The yield of a T-bill is the annualized return an investor receives when they purchase the bill at a discount and hold it until maturity. It is calculated by dividing the discount amount by the face value of the bill.
The yield of a T-bill is typically lower than other investments, such as stocks or corporate bonds, as it is considered a low-risk investment. However, it is higher than the yield of a savings account or a certificate of deposit.
The price and yield of a T-bill can be calculated using the following formula: Price = Face Value / (1 + (Yield x Time to Maturity)) and Yield = (Face Value - Price) / Price x (360 / Days to Maturity). Alternatively, you can use online calculators or consult with a financial advisor for accurate calculations.