Treasury bill
The investor's return comes from the difference between purchase price and the amount received at maturity, subject to the instrument's terms and government credit risk. A discount quoted on face value differs from a yield calculated on the price invested. Annualisation requires the correct day-count and simple or compound convention. Treasury bills may serve as a risk-free proxy in a particular currency model, but they are not free of all possible sovereign, currency, inflation or reinvestment risk. Their short maturity distinguishes them from longer-dated government bonds.
Worked example
A bill is bought for $98 and redeemed for $100 after one year. The investment yield is ($100 − $98)/$98 = 2.0408%, while the discount relative to face value is 2%.
Common mistake
Using the face value as the investment-yield denominator when the investor paid a lower price.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |