Skip to content

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

Money market instruments are most likely quoted on a yield basis that differs from bond-market conventions. Which of the following statements about money market yield conventions is most accurate?

Money market instruments use mixed quoting conventions: some, like Treasury bills and commercial paper, are quoted on a discount basis, while others, like deposits and certificates of deposit, are quoted on an add-on basis. Analysts must convert quotes to a common basis before comparing yields.

  1. AMoney market yields are always quoted on a bond-equivalent basis using a 365-day year.
  2. BSome money market instruments are quoted on a discount basis, while others are quoted on an add-on basis.Correct
  3. CAll money market instruments are quoted as discount rates based on face value.

Explanation

Money market instruments such as T-bills and commercial paper are often quoted as discount rates, while instruments such as bank deposits, Libor-style loans and certificates of deposit use add-on rates. The other statements wrongly claim a single universal convention.

Did you get it right without looking?

One question tells you little. A timed set on Yield and Yield Spread Measures for Floating-Rate Instruments shows your real accuracy, how long you take and where you lose marks.

Practise Yield and Yield Spread Measures for Floating-Rate InstrumentsFree diagnostic mock

More Yield and Yield Spread Measures for Floating-Rate Instruments questions