# How to Calculate the Purchase Price of a Treasury Bill

If you need an ultra-safe place to park money, Treasury bills are what the professionals choose, even though their rates can be quite low. T-bills are short-term securities that mature in a year or less. They are sold in denominations of \$1,000. The discount rate on T-bills changes daily, reacting quickly to developments in the economy and international politics. During the decade from 2002 to 2012, the high rate on 26-week bills was 5.12 percent on July 18, 2006. The low of 0.02 percent occurred on Aug. 26, 2011.

Find the purchase price of a T-bill by calculating the discount over the term of the T-bill. T-bills are quoted according to their discount rates, so you pay less than their \$1,000 face value. When they mature, you receive \$1,000. The difference between what you paid and \$1,000 is your interest earned.

Multiply the rate of discount by the number of days to maturity. If the 26-week T-bill price is quoted at 0.145 percent, multiply .00145 by 182 days. Your answer is 0.2639.

Divide 0.2639 by 360 to get the daily interest factor. In this example, the result is 0.000733. Subtract that number from 1 to get .999267. Multiply the result by 1000 to get the price of the T-bill, which in this case is \$999.27.

Subtract \$999.27 from the face value of \$1,000 to get your interest amount of \$0.73. When the T-bill matures you will receive the full face amount of \$1,000. Obviously, you would have to buy a lot of T-bills to realize a decent gain.

#### Tip

• If you buy your Treasury bills from TreasuryDirect.gov, you will not have to pay a transaction fee. When interest rates are low, a transaction fee can wipe out the interest on your T-bill investment.