Treasury Bills are a safe form of investment in US economic circles. Treasury Bills are sold in auctions by the US Treasury Department. The transaction is carried out by the Bureau of Public Department.
Treasury Bills are sold at a price that is less than their true face value. The face value is acquired when the bills reach maturity. The difference between the face value and the price paid is the profit of the holder.
The price range of T-Bills start at $1000 dollars. The maximum amount a buyer is allowed to invest is $5 million dollars. T Bills differ from normal bonds in that they do not pay in fixed interests.
The maturity period of these T-Bills range from one to six months. In these contracts, the US government is directly responsible to pay customers back the amount it owes, when the T- Bill matures. The mode of payment is different from bonds which do not have a set value. The profit derived is from the difference between the face value, and the price at which it has been sold.
There is a formula which is used to calculate discounts which are given on the face value of T-Bills. The discount is calculated by dividing the period required for maturity of the bill, by a product of the number of days in a year, and this is the basis of discount. A Bill with a maturity period of six months, if sold at a discount of about 7%, would have a discount of 35 dollars per $1000 dollars, of the amount which would be paid to the owner at the point of maturity.
On certain occasions, the Treasury Department issues Small-Term Cash Management Bills. They have a maturity period, of no more than fifty days. They are issued in batches of approximately a million. The main consumers of these products are organizations.