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CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Floating-Rate Instruments

An analyst compares a 180-day money market instrument quoted with a 360-day year to a bond-equivalent yield based on a 365-day year. To convert the money market yield to a bond-equivalent yield, the analyst should most appropriately:

The analyst should multiply the money market yield by 365/360. The same holding-period return is annualized over a 365-day year rather than a 360-day year, which raises the stated annual yield slightly.

  1. AMultiply the money market yield by 360/365
  2. BMultiply the money market yield by 365/360Correct
  3. CMultiply the money market yield by 180/365

Explanation

The same periodic return annualized over 365 days rather than 360 gives a larger rate, so the money market yield is scaled by 365/360. Multiplying by 360/365 reverses the adjustment and understates the yield.

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