Treasury bills are United States debt obligations that mature in less than a year, usually one month, three months or six months. Investors consider U.S. government debt to be one of the safest investments.
It is important to calculate the price to determine how much to pay for a Treasury bill. Treasury bills are issued at a discount, so the price to buy will be less than the face value of the T-bill.
Determine the discount rate and the days until maturity. These numbers are usually given when researching a Treasury bill. For example, a bill might have a 4 percent discount rate and mature in 70 days.
You can use this formula to convert discount rate to price: P=100_(1-d_r/360)
Divide the days until maturity by 360. In the example, 70 days divided by 360 days equals 0.19444.
Multiply the discount rate by the percentage of year until maturity. In the example, 0.04 times 0.19444 equals 0.007778.
Subtract 1 from the number calculated in Step 3. In the example, 1 minus 0.007778 equals 0.992222.
Multiply the number calculated in Step 4 by the face value of the Treasury bill. In the example, if the Treasury bill has a face value of $100, then 100 times 0.992222 equals a selling price of $99.22.
Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.