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Test 1 CheatSheet

# Test 1 CheatSheet - Rachel Katz Effective Annual Yield(rate...

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Rachel Katz Effective Annual Yield (rate of return) pure discount bonds: 1 ) ( / 1 - = Τ Π Φς ρ The Bank Discount Yield (r BDY ) is a linearization of the compound interest formula. n FV P FV r BDY 360 ) ( - = FV=face value FV-P=discount *Bank Discount Method Computations -calculations for t-bills, cps and bas Each of these three money market instruments are quoted and calculated on a bank discount basis 1) Computation of Bank Discount (Full Discount) Maturity to Days sis DiscountBa nt FullDiscou - - × = 360 Dollar price = \$100- Full Discount 2) Bank Discount Rate (Discount Basis) Maturity to Days of Number ParValue ice Purchase ParValue - - - - × - 360 Πρ Investment Yield to convert bank discount yield to capital market instruments Full discount X 365/days to maturity answer from prior equation x 1/dollar price 3) Quantitative: Converting discount basis to approximate investment yield ) ( 360 365 Maturity to Days sis DiscountBa sis DiscountBa - - × - × *Bank Discount Method: T-bill, CP and BA Returns PMD=(Purchased Maturity Days) or the number of days to maturity of T-bills, CPs or BAs when purchased DH =(Days Held) or the number of days held; HPRC =(Holding Period Return Change) or alternation in

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