Expert: Doug Ingram - 1/14/2002

Question
Hi Doug. Would you please help me with this question about Tbills? I don't think the information on the Treasury site is enough to figure out how much the profits are...

Let's take an easy example: the following info about recent TBills auction results is taken from the Treasury web site:

Term = 28-DAY (let's say a month)
Issue Date = 01-10-2002
Maturity = 02-07-2002
Discount Rate = 1.660%
Investment Rate = 1.684%
Price Per $100 = $99.871

That means that for each $100 invested in a month period aprox. the investor gets only $0.129 (100 - 99.871 = ) ?

That would make investing $10,000 a profit of only $12.90 ?! Then what's the point? Am I missing anything here?

Thank you in advance
Richard


Answer
The real question is, are you happy with 1.68% annually.
Rates have really dropped hard and there is NO inflation.
I remember back in the late seventies when TBills paid close to 40%!

If you take (365/28) x .129 you come back to 1.68%

That's 12.90 for 28 days.  ($168 for the year)

However, your checking account would have only earned
25 dollars for the whole year at .25% (the current rate) so $12.90 is better than $1.92! (28 days in your checking account)

When TBills get closer to 5 to 6%, it's easier to see the benefit.

However, if you put the money in stocks last week, you'd only have 9,700 of your $10,000 left.  And, that's why people "park" their money in short funds!

Sorry so late.  I was out!