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CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds

Compared with a bond-equivalent yield, the money market yield of a T-bill quoted on a discount basis is most likely to be:

The money market yield is most likely lower than the bond-equivalent yield. Both annualize the same holding period return, but the money market yield multiplies by 360/days while the bond-equivalent yield uses 365/days, so the 360-day convention produces the smaller figure.

  1. Alower, because it uses a 360-day yearCorrect
  2. Bhigher, because it uses a 360-day year
  3. Cidentical, because both use the same 365-day year

Explanation

Both yields use the same holding period return, which is annualized by 360/days for the money market yield and 365/days for the bond-equivalent yield. The smaller annualization factor makes the money market yield lower. The two are not identical.

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