A Guide To Discount Yield Calculations

Updated: Mar 7, 2021

What is a discount yield?


The discount yield is a type of yield which is commonly seen on money market securities like T-Bills or bankers acceptances. The calculation involves two unique assumptions.

1) That the year has 360 days

2) That the denominator used is the face value of the security not the price.






For example:

A banker's acceptance with a face value of $100 sells for $99 and matures in 180 days, what is the discount yield?


Solution:






How do I find the price of the security given the discount yield?


In order to find the price of a security when given the discount yield, we do the following

1) Multiply the discount yield by the # of days divided by 360




2) multiple the face value of the security by one minus the number we found in part (x)




How do I find the bond equivalent yield given the discount yield?


The bond equivalent yield is calculated using the price as the denominator and a 365 day year.




Therefore, all you need is the price and number of days until maturity. Using the equations given above you can find the price given the discount yield and solve for the bond equivalent yield


What is the difference between the Discount Yield and Bond Equivalent Yield?


The two key differences between the bond equivalent yield and the discount yield are as follows:

1) Denominator Discount = face value & Bond equivalent = price

2) Number of days in a year Discount = 360 & Bond Equivalent = 365