How to Calculate Treasury Yields

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Knowing how to determine treasury yield can improve your investment strategy.
Knowing how to determine treasury yield can improve your investment strategy. (Image: money image by Bradlee Mauer from <a href='http://www.fotolia.com'>Fotolia.com</a>)

Treasury yield is a financial term that describes the amount of money made by an investor who purchases treasury securities or government bonds. Specifically, it expresses the relationship between the face value of the security and the amount of return the investor receives. Knowing how to calculate the yield on a treasury bond or t-bill is useful, because it will allow you to make more informed investing decisions.

Gather the necessary information. You will need to know the face value of the bond, the purchase price of the bond, and the number of days left until the bond reaches maturity. The date the bond reaches maturity is the date that the issuer agrees to pay the investor the principle on the bond. The bond's face value is the amount of money the investor will receive on the maturity date.

Subtract the bond's purchase price from its face value. For example, if you had a bond that was purchased for $100 dollars and had a face value of $150, you would subtract $100 from $150 to get $50.

Divide the result by the face value of the bond. Continuing with our example from above, this would give us 50/150 or 0.33. For the purposes of this article we will call the result for this step the face value ratio.

Divide 360 (roughly the number of days in one year) by the numbers of days remaining until the treasury's maturity date. For example, if you had a bill that was set to mature in 91 days you would divide 360 by 91 to get 3.96 when you round up.

Multiply the result of the previous step by the face value ratio you calculated in Step 3. Using our example above, this would give us 3.96 x 0.33 or 1.31 when you round up once again.

Convert the answer to a percentage. To do this, you multiply the result of the previous step by 100. Using our example, this would give us 1.31 x 100 or a treasury bill yield of 131 percent.

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