Folder:
115 CFA
File:
115.070.03.06 Fixed Income - Reading 44 - 6. Yield Measures for Floating-Rate Notes and Money Market Instruments

6. Yield Measures for Floating-Rate Notes and Money Market Instruments

g. calculate and interpret yield measures for fixed-rate bonds and floating-rate notes;

h. calculate and interpret yield measures for money market instruments;

What is a floating-rate note?
Interest rate volatility affects the price of a fixed-rate bonds. A floating-rate note (a floater, or an FRN) maintains a more stable price than a fixed-rate note because interest payments adjust for changes in market interest rates.

What is a quoted margin?
The quoted margin is typically the specified yield spread over or under the reference rate, which is often LIBOR.

What is a discount margin?
The discount margin, also known as the required margin, is the spread required by investors and to which the quoted margin must be set in order for the Floating Rate Note (FRN) to trade at par value on a rate reset date.

What is money market yield?
Money market yield (also known as CD equivalent yield) is the annualized Holding Period Yield (HPY) on the basis of a 360-day year using simple interest.

What is bond equivalent yield?
Bond equivalent yield: money market rate stated on a 365-day add-on rate basis.


Source:
  • CFA