How are three-month T-bills typically quoted?

How are three-month T-bills typically quoted?

• A. On a discounted yield basis
• B. As a percentage of par
• C. At face value
• D. In fixed dollar amounts

Answer: (A)

Three-month T-bills are typically quoted on a discounted yield basis. This means that their prices reflect the interest deducted upfront from the face value, rather than paying interest in the traditional sense. When investors purchase a T-bill, they acquire it at a price lower than its face value, and upon maturity, they receive the full face value. The difference between the purchase price and the face value represents the investor's return, calculated as an annualized yield based on that discount. This method provides investors with a clear understanding of the yield they can expect, making it a standard practice for quoting T-bills. The other options do not accurately describe how T-bills are quoted, as T-bills do not typically trade at fixed dollar amounts or directly as a percentage of par or face value in the way many other securities might.

Three-month T-bills are typically quoted on a discounted yield basis. This means that their prices reflect the interest deducted upfront from the face value, rather than paying interest in the traditional sense. When investors purchase a T-bill, they acquire it at a price lower than its face value, and upon maturity, they receive the full face value. The difference between the purchase price and the face value represents the investor's return, calculated as an annualized yield based on that discount. This method provides investors with a clear understanding of the yield they can expect, making it a standard practice for quoting T-bills.

The other options do not accurately describe how T-bills are quoted, as T-bills do not typically trade at fixed dollar amounts or directly as a percentage of par or face value in the way many other securities might.