I understand that Treasury bills are sold at a discount and that the difference between the buying price and nominal value represents the return for the investor. However I am confused with the BEY formula ((Face value – Purchase price)/Purchase price * (365/ days to maturity)) particularly the ”multiplied by 365/d”. Why do we need to annualize the return? Can’t we simply quantify in percentage how much the investor wins (by, say, doing (F-P)/F * 100) ?
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In nearly every financial metric, the measure is annualized. This makes it intuitive for comparison. In very roughly approximating the attractiveness of an investment, one would naturally compare it to prevailing circumstances like interest rates, inflation rates, yields on short terms bills etc etc which are all reported in annualized quantities.
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