Climate change adaptation and Discount basis: Difference between pages
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This term can refer either to the cash flows of an instrument (Discount instruments) or to its basis of market quotation (Discount rate). | |||
'''Example''' | |||
An instrument is quoted - on a <u>discount basis</u>, one period before its maturity - at a discount of 10% per period. | |||
This means that it is currently trading at a price of 100% LESS 10% = 90% of its terminal value. | |||
(The periodic ''yield'' on this instrument is 10% / 90% = 11.11%. So if the same instrument had been quoted on a <u>yield basis</u>, then the quoted yield per period = 11.11%.) | |||
The relationship between the periodic discount rate (d) and the periodic yield (r) is: | |||
r = d / ( 1 - d ) | |||
So in this case: | |||
r = 0.10 / ( 1 - 0.10 = 0.90 ) | |||
= 11.11% | |||
== See also == | == See also == | ||
* [[ | * [[Discount instruments]] | ||
* [[ | * [[Discount rate]] | ||
* [[ | * [[Sterling commercial paper]] | ||
* [[ | * [[US commercial paper]] | ||
* [[ | * [[Yield basis]] | ||
Revision as of 13:11, 15 March 2015
This term can refer either to the cash flows of an instrument (Discount instruments) or to its basis of market quotation (Discount rate).
Example
An instrument is quoted - on a discount basis, one period before its maturity - at a discount of 10% per period.
This means that it is currently trading at a price of 100% LESS 10% = 90% of its terminal value.
(The periodic yield on this instrument is 10% / 90% = 11.11%. So if the same instrument had been quoted on a yield basis, then the quoted yield per period = 11.11%.)
The relationship between the periodic discount rate (d) and the periodic yield (r) is:
r = d / ( 1 - d )
So in this case:
r = 0.10 / ( 1 - 0.10 = 0.90 )
= 11.11%
