How to Calculate Treasury Bill Profit in Nigeria

What are Treasury Bill?

Treasury Bills are government guaranteed debt instruments granted by the Central Bank of Nigeria on their behalf to assist in financing expenditure. The CBN also uses treasury bills to control the supply of money in the economy.

How Do I Calculate The Returns On Investment?

Since Treasury bills are issued at a discount, the profit that you get upon the maturity of the bill is the difference between the purchase price and the maturity price. Let’s get a little bit practical: If you pay N95 (discount rate being 5%) for a Treasury bill with a face value of N100 at an auction for a 1-year Treasury bill, your yield to maturity, or amount earned if you hold the bond for one year, is (S$100-S$95) / 95 x 100 = 5.26%.

Let’s say the discount rate is 15% for 1 year.

you will pay N425,000.

if you hold to maturity = (500,000-425,000)/425,000 * 100 = 17.64%

In essence if you hold for one year ur effective yield is N88,235.3

How to calculate treasury bill profit in Nigeria.

Treasury Bills are short-term debt instruments issued by the Nigerian government to raise funds and manage liquidity in the economy. Their maturity ranges from 91 days, 182 days, and 364 days.

Here’s how to calculate the profit from investing in Nigerian Treasury Bills:

  1. Know the Purchase Price: This is the amount you invest in the Treasury Bill. Let’s call this amount P.
  2. Know  the Face Value:  The face value of the Treasury Bill is the amount you will receive upon maturity. So we can call the face value F.
  3. Figure out the Discount Rate (Interest Rate): This rate is the annual amount an will earn on their investment. Let’s call this rate r.
  4. Calculate the Profit: Since Treasury Bills are sold at a discount, the profit is the face value minus the purchase price. Mathematically:

Profit = Face Value (F) – Purchase Price (P)

Example:

Let’s say you invest ₦100,000 in a 91-day Treasury Bill with a face value of ₦110,000 and an annualized discount rate of 10%. Here’s how to calculate the profit:

– Purchase Price (P) = ₦100,000

– Face Value (F) = ₦110,000

– Discount Rate (r) = 10% or 0.10

Profit = F – P

= ₦110,000 – ₦100,000

= ₦10,000

The Treasury Bill here is ₦10,000.

Who can invest in Treasury Bills in Nigeria?

T-Bills are available for both individual and institutional investors, this can also includebanks, pension funds, and foreign investors.

Can I sell my Treasury Bills before maturity?

Yes, you can sell your T-Bills before their maturity date

Where can I sell my Treasury Bills

In the secondary market through authorized dealers or brokers.

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