Treasury Bills are supposed to be a safe form of investment by investors, all over the US economic circles. The Treasury Bills are sold over auctions by the US Treasury Department. The eventual 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 by the buyer 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 these T-Bills begins at $1000. The maximum amount, a buyer is allowed to invest is 5 million. These differ from normal bonds in that they do not pay in terms of fixed interests, like them. The appreciation or acknowledgment is the real gain, for the buyer.
The maturity periods of these Bills range from one to six months, or say, four to twenty-six, in terms of weeks. As per these contracts the US government is directly responsible to pay the customer back the amount, it says it owes, by the time the said Bill matures. The mode of payment is different however from bonds, in general.
It is not regular and the profit derived is from the difference between the face value, and the price at which it has been sold.
There is a formula in place which is used to calculate the discount which will be given on the face value of these 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 the basis of discount. Thus 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 certain small-term Cash Management Bills. They have a maturity period, never crossing fifty days. They are issued in batches of a million or so. The main consumers of these products are mainly organizations.