When you evaluate a Treasury bill, or T-bill, you should determine the fair market value of the investment. In Excel, you can use the TBILLPRICE function to find that value. If you evaluate a T-bill and your formula displays a NUM error, you should check your settlement date and maturity date. T-bills have a life of one year or less, so you might have entered a date incorrectly.
- [Voiceover] When you evaluate a Treasury Bill or T-Bill, you should determine the fair market value of the investment. In Excel you can find that value using the T-Bill Price Function. We'll demonstrate this calculation using the TBillPrice_05_08 sample workbook. You can find that in the chapter five folder of the Exercise Files collection. A T-Bill or Treasury Bill is a government investment that lasts less than one year. So, for example, if you have an investment that runs from, in this case, a settlement date when you take possession of the bill of May 1st, 2016, and a maturity date when you get paid the principal plus interest on December 31, you have a duration of less than one year.
Those are the first two things we need to know. The third bit of information we need to evaluate this investment is the discount rate. The discount rate is the rate of return that you could make on an investment with zero risk. So in other words if you have a product that sells and makes you money reliably every year, and you make 4.25% on that legacy product, then you can assume that it is your discount rate. What I want to do though is to find a price for this particular Treasury Bill.
I'll click in cell C7 and I will enter my formula. The function I'll use again is T-Bill Price. So in C7 I'll type an equal sign and then tbillprice, and enter in the three arguments. Those are in C3, the settlement date comma, C4, the maturity date comma, and C5 the discount rate, right parenthesis to close and Enter. I see that for a T-Bill with a $100 redemption value or face value, I should be willing to pay $97.12.
It is possible to make an error when you're evaluating a T-Bill. For example, if your maturity date is more than one year past the settlement date. Just to show you what happens, I'll click in cell C4 and edit the maturity date so it goes from December 31, 2016 to December 31, 2017 and press Enter. When I do, you can see that I get an number error. The reason that happened is because the duration or the time between settlement date and maturity date is more than one year.
- Analyzing loans, payments, and interest
- Calculating depreciation
- Determining values and rates of return
- Calculating bond coupon dates and security durations
- Calculating security prices and yields
- Calculating prices and yields of securities with odd periods
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Calculating Prices and Yields of Securities with Odd Periods
Additional resources1m 24s
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