A T-bill with a face value of $100,000 and 140 days until maturity is selling for $98,000. What is the effective annual yield (EAY)? A. 2.04%. B. 5.14%. C. 5.41%.
The EAY takes the holding period yield and annualizes it based on a 365-day year accounting for compounding. HPY = (100,000 − 98,000) / 98,000 = 0.0204. EAY = (1 + HPY)365/t − 1 = (1.0204)365/140 − 1 = 0.05406 = 5.41%.
