header bg

Question:

All other factors remaining the same, which of the following statements is most likely regarding yields on short-term investments?

A The discount basis yield will be lower than the money market yield.
Explaination

• The discount basis yield will be lower than the money market yield, as it is based on the face value, not the price. Because the face value of a discounted instrument is greater than its price, the discount basis yield will be lower.
• The bond equivalent yield is greater than the money market yield because it is annualized over a 365‐day year, whereas the money market yield uses a 360‐day year.
• The discount basis yield can be greater than or less than the bond equivalent yield.