Short Term Investment Yields
Short-term investments are investment assets that are meant to be held for less than a year. We calculate the yields on money of these assets using a discount yield basis. The difference between face value and purchase price is the discount interest.
- Purchase price (discount purchase): Face Value – [(APR)(periods remaining/maturity)(FV)]
- Proceeds (FV purchase): Face Value + [(APR)(periods remaining/maturity)(FV)]
There are three different quoting conventions to calculate the yields.
- Money market yield = [(Face value – Purchase price)/Purchase price] x (360/day to maturity)
- Bond equivalent yield = [(Face value – Purchase price)/Purchase price] x (365/day to maturity)
- Discount basis yield = [(Face value – Purchase price)/Face value] x (360/day to maturity)
The bond equivalent yield is the closest yield for determining real return, however all three yields are standard convention.