How to Calculate Treasury Bills in Nigeria
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What are Treasury Bills?
Treasury Bills are debts instruments issued by the CBN on behalf of
the government in order to finance expenditure. Treasury bills are
guaranteed by the government. Another function of the issuance of
treasury bills by the Central Bank of Nigeria is that it controls
money supply in the economy.
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How Treasury Bills are sold
Treasury Bills are sold every other week (bi-weekly) via an auction
conducted by the CBN. Buyers are requested to quote bids after which
the average minimum bid is selected.
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Minimum amount for Treasury Bills
In March 2017, the Federal Government increased the minimum amount
required to partake in its biweekly treasury bills auction from N10,
000 to N50 million. However, you can still invest in treasury bills
even if you do not have a whooping amount of 50 million naira.
Ways you can invest in Treasury bills
Treasury bills in Nigeria can be purchased either through primary or
secondary markets. A primary market involves a direct purchase from
the Central Bank of Nigeria through a public auction carried out in
two weeks.
On the other hand, the secondary market involves buying it from an
existing holder, which could be through a bank or stockbroker.
Treasury bills can be bought through any official dealer. The most
popular official dealers in today’s market are banks. You can
purchase treasury bills via banks’ Treasury bill mobile application.
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Investing in Treasury bills as a secondary market
Banks and other financial institutions usually hold Treasury bills
having bought it in the primary market directly from the CBN. There
are two ways in which you can invest in this opportunity as a
secondary market. You can decide to buy Treasury bills in Nigerian
banks or get it through stockbrokers. Investment via banks is simple
and the most reliable.
To invest in treasury bills via banks, the first thing you need to do
is get in touch with your bank. Note that the bank determines the
minimum bond you can buy. Some banks offer N50, 000 as a minimum,
while others go as high as N500, 000. There are many other options
available to you via which you can invest in treasury bills. For
example, some banks pull together resources from many investors to
raise enough money and buy these bonds in the primary market. You
could get in touch with such investors and make your investment.
Another way is buying from an online broker. Buying from an online
broker is less stressful as you can register and go through the entire
process at your convenience. Most online brokers accept a minimum of
N100,000.
What is the bid rate?
The bid rate is also known as your Stop rate. This is the interest
rate that you have indicated to receive for the principal that you are
investing in the Treasury bill purchase. You can indicate an interest
rate of 10% or 15% as your expected rate. Bid rates differ and your
bid rate can be/ will most likely be different from that of other
intending buyers of same Treasury bill.
How is the Bid Rate selected?
The Central Bank selects the bids that falls below the accepted
marginal rates. The Marginal Rate is the minimum average rate accepted
for bids submitted within a bid window. For example, if the marginal
bid rate for a bid is 11% then bids falling below this rate will be
accepted while those above 11% will be rejected. If you do not have a
stop rate or you are not sure of a rate, you can have your bank choose
a rate for you. However, this does not guarantee that the bank rate
will be chosen or will be the best.
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How often are Treasury bills auctioned?
Treasury bills are issued for a duration referred to as tenor. In
Nigeria, three tenors are used. These are 91 days, 182 days, or 364
days. The Central Bank of Nigeria does the auctioning exercise every
two weeks. The auction is open to willing investors.
How to calculate Treasury bills in Nigeria
Remember that the Federal government issues Treasury bills at
discounted prices and upon maturity, the government repurchases them
at a full quotation. For example, if an investor buys a N300, 000
Treasury bill at a discounted rate of N200, 000 for 364 days. After
the purchase, the Federal government writes an IOU (I owe you) of the
initial amount, N300, 000 and pledges to pay after 364 days.
Upon expiration of the set tenure, the government buys back at the
full price- N300, 000. The interest rates for these bonds are not
fixed. The Central Bank of Nigeria and the demand for the Treasury
bills determine the stop rate.
You can calculate your return on investment upon investing in Treasury
bills. This is the amount you should expect at maturity. Here is how
to calculate your returns.
If you buy a 364-day Treasury bill worth N300, 000 at your bank or
from a stockbroker at an interest rate of 10%.
You can calculate the upfront payment using the formulae below.
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Interest = Principal × Time × Rate/100
Principal = N300, 000 Time = 364 days (equivalent to 1 year) Rate =
10% all over 100
N300,000 × 1 × 10/100 = N30,000 This, therefore, means that you will
get paid N30,000 at the start of your investment and the remaining
N270,000 is remitted to the Central Bank of Nigeria. The figures above
should tell you that your investment is N270,000 and not N300,000
because you get N30,000 back.
How then do you determine your actual rate of return?
Rate = (Interest × 100)/ (Principal x Time) (30000 × 100) ÷ (270000
× 1) = 11.1%
This is how you to determine your interest rates on Treasury bills in Nigeria.
Investing in Treasury bills in Nigeria is easy and profitable.
However, if you wish to invest in this sector, you must familiarize
yourself with the business first before you venture into it.
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What are Treasury Bills?
Treasury Bills are debts instruments issued by the CBN on behalf of
the government in order to finance expenditure. Treasury bills are
guaranteed by the government. Another function of the issuance of
treasury bills by the Central Bank of Nigeria is that it controls
money supply in the economy.
(adsbygoogle = window.adsbygoogle || []).push({});
How Treasury Bills are sold
Treasury Bills are sold every other week (bi-weekly) via an auction
conducted by the CBN. Buyers are requested to quote bids after which
the average minimum bid is selected.
(adsbygoogle = window.adsbygoogle || []).push({});
Minimum amount for Treasury Bills
In March 2017, the Federal Government increased the minimum amount
required to partake in its biweekly treasury bills auction from N10,
000 to N50 million. However, you can still invest in treasury bills
even if you do not have a whooping amount of 50 million naira.
Ways you can invest in Treasury bills
Treasury bills in Nigeria can be purchased either through primary or
secondary markets. A primary market involves a direct purchase from
the Central Bank of Nigeria through a public auction carried out in
two weeks.
On the other hand, the secondary market involves buying it from an
existing holder, which could be through a bank or stockbroker.
Treasury bills can be bought through any official dealer. The most
popular official dealers in today’s market are banks. You can
purchase treasury bills via banks’ Treasury bill mobile application.
(adsbygoogle = window.adsbygoogle || []).push({});
Investing in Treasury bills as a secondary market
Banks and other financial institutions usually hold Treasury bills
having bought it in the primary market directly from the CBN. There
are two ways in which you can invest in this opportunity as a
secondary market. You can decide to buy Treasury bills in Nigerian
banks or get it through stockbrokers. Investment via banks is simple
and the most reliable.
To invest in treasury bills via banks, the first thing you need to do
is get in touch with your bank. Note that the bank determines the
minimum bond you can buy. Some banks offer N50, 000 as a minimum,
while others go as high as N500, 000. There are many other options
available to you via which you can invest in treasury bills. For
example, some banks pull together resources from many investors to
raise enough money and buy these bonds in the primary market. You
could get in touch with such investors and make your investment.
Another way is buying from an online broker. Buying from an online
broker is less stressful as you can register and go through the entire
process at your convenience. Most online brokers accept a minimum of
N100,000.
What is the bid rate?
The bid rate is also known as your Stop rate. This is the interest
rate that you have indicated to receive for the principal that you are
investing in the Treasury bill purchase. You can indicate an interest
rate of 10% or 15% as your expected rate. Bid rates differ and your
bid rate can be/ will most likely be different from that of other
intending buyers of same Treasury bill.
How is the Bid Rate selected?
The Central Bank selects the bids that falls below the accepted
marginal rates. The Marginal Rate is the minimum average rate accepted
for bids submitted within a bid window. For example, if the marginal
bid rate for a bid is 11% then bids falling below this rate will be
accepted while those above 11% will be rejected. If you do not have a
stop rate or you are not sure of a rate, you can have your bank choose
a rate for you. However, this does not guarantee that the bank rate
will be chosen or will be the best.
(adsbygoogle = window.adsbygoogle || []).push({});
How often are Treasury bills auctioned?
Treasury bills are issued for a duration referred to as tenor. In
Nigeria, three tenors are used. These are 91 days, 182 days, or 364
days. The Central Bank of Nigeria does the auctioning exercise every
two weeks. The auction is open to willing investors.
How to calculate Treasury bills in Nigeria
Remember that the Federal government issues Treasury bills at
discounted prices and upon maturity, the government repurchases them
at a full quotation. For example, if an investor buys a N300, 000
Treasury bill at a discounted rate of N200, 000 for 364 days. After
the purchase, the Federal government writes an IOU (I owe you) of the
initial amount, N300, 000 and pledges to pay after 364 days.
Upon expiration of the set tenure, the government buys back at the
full price- N300, 000. The interest rates for these bonds are not
fixed. The Central Bank of Nigeria and the demand for the Treasury
bills determine the stop rate.
You can calculate your return on investment upon investing in Treasury
bills. This is the amount you should expect at maturity. Here is how
to calculate your returns.
If you buy a 364-day Treasury bill worth N300, 000 at your bank or
from a stockbroker at an interest rate of 10%.
You can calculate the upfront payment using the formulae below.
(adsbygoogle = window.adsbygoogle || []).push({});
Interest = Principal × Time × Rate/100
Principal = N300, 000 Time = 364 days (equivalent to 1 year) Rate =
10% all over 100
N300,000 × 1 × 10/100 = N30,000 This, therefore, means that you will
get paid N30,000 at the start of your investment and the remaining
N270,000 is remitted to the Central Bank of Nigeria. The figures above
should tell you that your investment is N270,000 and not N300,000
because you get N30,000 back.
How then do you determine your actual rate of return?
Rate = (Interest × 100)/ (Principal x Time) (30000 × 100) ÷ (270000
× 1) = 11.1%
This is how you to determine your interest rates on Treasury bills in Nigeria.
Investing in Treasury bills in Nigeria is easy and profitable.
However, if you wish to invest in this sector, you must familiarize
yourself with the business first before you venture into it.
(adsbygoogle = window.adsbygoogle || []).push({});
(adsbygoogle = window.adsbygoogle || []).push({});
jQuery(document).ready(function( $) { $.post(
'https://nigerianfinder.com/wp-admin/admin-ajax.php', {action:
'mts_view_count', id: '289518'}); });
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