The formula to calculate the Return on T-Bill (ROTB) is:
\[ ROTB = \frac{CVTB - PPTB}{PPTB} \times 100 \]
Where:
Return on T-Bill (ROTB) is a measure of the profitability of an investment in Treasury bills. It is calculated by subtracting the purchase price of the T-bill from its current value, dividing by the purchase price, and multiplying by 100 to express it as a percentage. This metric helps investors understand the return they are earning on their investment in T-bills.
Let's assume the following values:
Step 1: Subtract the purchase price from the current value:
\[ 1050 - 1000 = 50 \]
Step 2: Divide by the purchase price:
\[ \frac{50}{1000} = 0.05 \]
Step 3: Multiply by 100 to express as a percentage:
\[ 0.05 \times 100 = 5\% \]
Therefore, the Return on T-Bill is 5%.