CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Floating-Rate Instruments
A 90-day bill is priced at 99.00 per 100 of face value. Using a 360-day year for the money market yield and a 365-day year for the bond-equivalent yield, the bond-equivalent yield is closest to:
The bond-equivalent yield is about 4.10%. The 90-day return is 1/99, or 1.0101%, and annualizing it with 365/90 instead of 360/90 gives roughly 4.096%, above the 4.04% money market yield.
- A4.00%
- B4.04%
- C4.10%Correct
Explanation
Holding period return = 1/99 = 1.0101%. Money market yield = 1.0101% x 360/90 = 4.04%. Bond-equivalent yield = 1.0101% x 365/90 = 4.096%, about 4.10%. The 4.04% option stops at the 360-day basis, and 4.00% is the discount rate.
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