How this number is made
A Treasury bill pays no coupon. You pay less than face and receive face at maturity. The discount yield quotes that discount against face and a 360-day year, which is the old bill convention. The investment yield quotes it against the price you actually paid and a 365-day year. The investment yield is the one that compares more fairly with a bond.
- Price has to be below face. A price at or above face is not a discount bill.
- Days are the days left, not always the original term, if you buy it in the secondary market.
Formula
Discount yield = ((face − price) ÷ face) × (360 ÷ days). Investment yield = ((face − price) ÷ price) × (365 ÷ days).
Worked example
With the figures already in the form, investment yield is 8.19%.
Questions
Which yield is on the Treasury site?
Both conventions show up. Read the label. This page prints both so the label is not a surprise.
Is the gain taxed?
Treasury bill interest is generally taxed federally and exempt from state income tax. The yield here is before tax.