Answer :
The effective annual yield on a $1 million T-bill that currently sells at 99.3 percent of its face value and is 72 days from maturity is 2.238 percent.
The formula used for calculating the effective annual yield (EAY) is given as follows:
Effective annual yield = [1 + (discount rate/number of periods per year)] ^ a number of periods per year - 1
Here, the discount rate is calculated using the following formula: Discount rate = (face value - price) / face value * (number of days in a year/number of days to maturity)
Now, substituting the given values in the above two formulas, we get:
Discount rate = (1,000,000 - (0.993 * 1,000,000)) / 1,000,000 * (365 / 72) = 0.02444
Effective annual yield = [1 + (0.02444 / 1)] ^ 1 - 1 = 0.02238 or 2.238%
Therefore, the effective annual yield on a $1 million T-bill that currently sells at 99.3 percent of its face value and is 72 days from maturity is 2.238 percent (rounded to 3 decimal places).
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