Is Bank discount yield a meaningful measure of the return on investment?
Answer
not
Tags
#reading-7-discounted-cashflows-applications
Question
Is Bank discount yield a meaningful measure of the return on investment?
Answer
?
Tags
#reading-7-discounted-cashflows-applications
Question
Is Bank discount yield a meaningful measure of the return on investment?
Answer
not
If you want to change selection, open document below and click on "Move attachment"
Subject 4. Different Yield Measures of a U.S. Treasury Bill unt basis D = the dollar discount, which is equal to the difference between the face value of the bill, F, and its purchase price, P t = the number of days remaining to maturity 360 = the bank convention of the number of days in a year.
<span>Bank discount yield is not a meaningful measure of the return on investment because:
It is based on the face value, not on the purchase price. Instead, return on investment should be measured based on cost of investment. It is annualized using a 360-day year, not a 365-day year. It annualizes with simple interest and ignores the effect of interest on interest (compound interest).
Holding period yield (HPY) is the return earned by an investor if the money market instrument is held until maturity:
P 0 =
Summary
status
not learned
measured difficulty
37% [default]
last interval [days]
repetition number in this series
0
memorised on
scheduled repetition
scheduled repetition interval
last repetition or drill
Details
No repetitions
Discussion
Do you want to join discussion? Click here to log in or create user.