Hi David,
"Convert discount rate to price for Tbill". Could we see the pb like that :
i) Cash price=Face value-Future cash flow (not discounted). Future CF=Disc rate%*Face Value*nb days/360.
Investor pay now a price that is face value minus cash flow that he will receive at maturity {...}
ii) True Yield (r) is solution for following relation Cash Price=Face Value/(1+r%*nb days/360).
{...} but we have to discount with a yield to maturity.
It is a reverse and decomposed mean of what we use to do : discount cash flow to find price (wich is a present value). Unknown is price (PV). Here we first compute future cash flows and solve for unknown yield to maturity by discounting ?
Thanks
Hervé
"Convert discount rate to price for Tbill". Could we see the pb like that :
i) Cash price=Face value-Future cash flow (not discounted). Future CF=Disc rate%*Face Value*nb days/360.
Investor pay now a price that is face value minus cash flow that he will receive at maturity {...}
ii) True Yield (r) is solution for following relation Cash Price=Face Value/(1+r%*nb days/360).
{...} but we have to discount with a yield to maturity.
It is a reverse and decomposed mean of what we use to do : discount cash flow to find price (wich is a present value). Unknown is price (PV). Here we first compute future cash flows and solve for unknown yield to maturity by discounting ?
Thanks
Hervé
