For a 90-day US Treasury bill selling at a discount, which of the following methods most...
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For a 90-day US Treasury bill selling at a discount, which of the following
methods most likely results in the highest yield?
A. Money market yield (MMY)
B. Bond equivalent yield (BEY)
C. Discount-basis yield (DBY)
D. All three methods will result in the same yield
Homework Answers
Money market yield is calculated by the formula: ((Face value-Purchase value)/Purchase value)*(360/Days to maturity)
Bond equivalent yield is calculated by the formula: ((Face value-Purchase value)/Purchase value)*(365/Days to maturity)
Discount basis yield is calculated by the formula: ((Face value-Purchase value)/Face value)*(360/Days to maturity).
As T-bill is selling at discount, Face value>Purchase value.
So, Bond equivalent yield will give the highest yield.
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