YTM (Yield To Maturity) on US T-Bill

Q

What is YTM (Yield To Maturity) of US Treasury Bill?

✍: FYIcenter.com

A

Yield commonly refers to the rate of income generated from an investment year-over-year. YTM (Yield To Maturity) of US Treasury Bill (T-Bill) refers the yield generated from a T-Bill, if you hold it until its maturity date. The price discount is considered as the income and the purchase price is considered as the investment.

The following formula defines the YTM in a very easy-to-understand form:

 $F = P \times {(1 + y)}^{T}$ 
 $P = Purchase price$ 
 $F = Face value$ 
 $y = YTM (Yield To Maturity)$ 
 $T = \frac{Days}{Year} = Term in years$ 
 $Days = Days to maturity$ 
 $Year = 365 or 366 = Actual number of days in the year$

Of course, we can transform the about formula into different forms to calculate YTM, purchase price and face value:

 $F = P \times {(1 + y)}^{T}$ 
 $P = \frac{F}{{(1 + y)}^{T}}$ 
 $y = {(\frac{F}{P})}^{\frac{1}{T}} - 1$