What's interesting about this page? Well, for one thing it was written almost entirely by ChatGPT. That's right. With the exception of what you're reading right now, the code used to create the yield curve you see was created by my prompts to ChatGPT.
I also wanted to illustrate how Treasury bill discount yields were calculated. Again, ChatGPT and I came up with a nice Manim illustration. This is a work in progress!
So, how are Treasury bill yields calculated? Well, the first thing to realize is that when you purchase a Treasury bill, you are purchasing it at a discount. In other words, if you purchased a $100.00 Treasury bill, you pay some amount less than $100.00. Then, after some period of time, the bill matures, and you receive $100.00.
The terms to keep in mind here are price, maturity, yield, and annualized yield.
Now, let's visualize this with the help of Manim. Out of our account with $10000, We're going to purchase $10000 worth of Treasury bills that mature in 28 days. These 28-day bills are priced (based upon an auction, which we'll talk about later), at $99.5721. What does that mean? For every $100 worth, we'll pay $99.5721. If we're purchasing $10000 that comes out to $9957.21. So, what happens? We pay $9957.21 out of our account on the date of purchase, leaving us with $42.79. Then, 28 days later a deposit of $10000 lands in our account, bringing its balance to $10042.79.
Now we can talk about what our annualized yield was in this example: 5.58%.Copyright 2023