CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds
A 120-day money market instrument is priced at 98,000 per 100,000 face value. Using a 360-day year, the add-on rate (money market yield) is closest to:
The add-on rate is about 6.12%. The 120-day return is 2,000/98,000 = 2.04%, and annualizing on a 360-day basis multiplies by three. Using face value as the base instead gives the 6.00% discount rate, which is wrong.
- A2.00%
- B6.00%
- C6.12%Correct
Explanation
Holding period yield = (100,000 − 98,000)/98,000 = 2.0408%. Annualized add-on rate = 2.0408% × 360/120 = 6.12%. The 6.00% option wrongly divides by face value (discount rate basis), and 2.00% is unannualized.
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