DISCOUNT YIELD Meaning and
Definition
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The term "discount yield" refers to the percentage difference between the face value or par value of a fixed-income security and its purchase price. It is commonly used to assess the investment return on short-term debt securities, such as Treasury bills or commercial paper, that are purchased at a discounted price.
Discount yield is calculated by dividing the discount or difference between the purchase price and face value by the face value and multiplying it by 100. The resulting figure represents the yield as a percentage of the face value. For example, if an investor purchases a Treasury bill with a face value of $10,000 at a discounted price of $9,500, the discount yield would be ($10,000 - $9,500) / $10,000 x 100, which equals 5%.
Discount yield can be used to compare the relative attractiveness of different fixed-income securities. Generally, higher discount yields indicate greater potential returns, but they also come with higher risk. It is crucial to consider the creditworthiness of the issuer, the maturity date of the security, and the prevailing market interest rates when evaluating the discount yield.
Overall, discount yield provides investors with a measure of the percentage gain they can expect to earn when purchasing a fixed-income security at a price below its face value.
Common Misspellings for DISCOUNT YIELD
- siscount yield
- xiscount yield
- ciscount yield
- fiscount yield
- riscount yield
- eiscount yield
- duscount yield
- djscount yield
- dkscount yield
- doscount yield
- d9scount yield
- d8scount yield
- diacount yield
- dizcount yield
- dixcount yield
- didcount yield
- diecount yield
- diwcount yield
- disxount yield
- disvount yield
Etymology of DISCOUNT YIELD
The word "discount" originated from the Latin word "discomputare", which means "to deduct" or "to subtract". It entered Middle English as "discounten" in the 14th century, referring to a reduction in the price or value of something.
The word "yield" comes from the Old English word "gieldan" or "geldan", meaning "to pay or give". It can also be traced back to the Proto-Germanic root "geld-" meaning "to pay".
When combined, "discount yield" refers to the reduction or deduction in the price or value of an investment instrument or financial security, such as a bond. It represents the difference between the purchase price and the face value of the security.
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