Discount, true yield, and maturity proceeds on a Treasury Bill.
True yield
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Discount
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Purchase price
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Maturity proceeds
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Your breakdown
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Item
Amount
Worked example
Take a Treasury Bill with a face value of N1,000,000, a quoted discount rate of 22%, and a tenor of 364 days. The discount is the face value times the discount rate times the tenor over 365 days, which is N1,000,000 times 22% times 364 over 365, about N219,397. The price you pay is the face value less the discount, about N780,603. At maturity you receive the full N1,000,000. Because you only invested N780,603 to receive N1,000,000, the true yield is higher than the quoted 22%: it is the discount over the price, annualised, which works out to about 28.18%. This gap between the quoted discount rate and the true yield is the key feature of discount instruments.
Item
Value
Discount
N219,397
Purchase price
N780,603
Maturity proceeds
N1,000,000
True yield
28.18%
How it is calculated
A Treasury Bill is a discount instrument: you buy it below face value and it pays the full face value at maturity, with no separate interest payment. The discount amount is the face value times the quoted discount rate times the tenor in days over 365. The purchase price is the face value minus that discount. The true yield, sometimes called the effective or bond-equivalent yield, annualises the actual return on the money you invested: it is the discount divided by the price, then scaled up by 365 over the tenor in days. Because the price is smaller than the face value, the true yield always exceeds the quoted discount rate, which is why comparing bills on their true yield is the fair basis. The CBN monetary policy rate is a useful anchor for where current bill rates sit. For an individual, interest on Treasury Bills has generally been tax-exempt, so the true yield is close to what you keep.
Frequently asked questions
How does a Nigerian Treasury Bill work?
A Treasury Bill is sold at a discount to its face value and pays the full face value at maturity. The discount is the face value times the quoted discount rate times the tenor over 365 days. The price you pay is the face value less the discount. Because you invest less than the face value, the true yield is higher than the quoted discount rate. The CBN policy rate is a useful anchor for current rates.
Why is the true yield higher than the quoted discount rate?
The discount rate is calculated on the face value, but you only invest the purchase price, which is smaller. Because your actual outlay is less than the face value, the return earned on that smaller investment is a higher percentage. For a 364-day bill at a 22 percent discount rate, the true yield works out to about 28.18 percent, a meaningful difference that matters when comparing bills against other fixed-income instruments.
What tenors are available for Nigerian Treasury Bills?
The CBN typically issues Treasury Bills at three standard tenors: 91 days (about three months), 182 days (about six months), and 364 days (one year). Longer tenors usually carry higher quoted rates to compensate for the longer lock-up. Enter the exact tenor in days in this calculator to get the precise discount and yield for whichever tenor you are evaluating.
Are Nigerian Treasury Bill returns taxed?
Interest income on Federal Government of Nigeria Treasury Bills has generally been exempt from personal income tax for individual investors, which means the true yield is close to what you actually keep. This treatment is subject to change by legislation, so confirm the current position with the Federal Inland Revenue Service before making investment decisions based on the after-tax return.