Discount Yield

AAA

DEFINITION of 'Discount Yield'

Discount yield is a measure of a bond's percentage return. Discount yield is most frequently used to calculate the yield on short-term bonds and treasury bills sold at a discount. This yield calculation uses a 30-day month and 360-day year to simplify calculations. Discount yield is calculated by the following formula:
Discount Yield = [(par value - purchase price)/par value] * [360/days to maturity]

INVESTOPEDIA EXPLAINS 'Discount Yield'

The 30/360 simplification used in discount yield means that the discount yield figure is a slightly inaccurate measure of an investor's true return on investment. Although more accurate measures of yield are available, discount yield is still used as a matter of convention within the short-term bond and treasury bill world. This may be partially due to the fact that the yield on U.S. Treasury Bills is most commonly quoted as a discount yield.

RELATED TERMS
  1. Gross Yield

    The yield on an investment before the deduction of taxes and ...
  2. Bond Equivalent Yield - BEY

    A calculation for restating semi-annual, quarterly, or monthly ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that ...
  4. Yield To Worst - YTW

    The lowest potential yield that can be received on a bond without ...
  5. Yield

    The income return on an investment. This refers to the interest ...
  6. Current Yield

    Annual income (interest or dividends) divided by the current ...
Related Articles
  1. Bonds & Fixed Income

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  2. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  3. Bonds & Fixed Income

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  4. Options & Futures

    Callable Bonds: Leading A Double Life

    Find out more about these dangerous and exciting cousins to regular bonds.
  5. Investing Basics

    APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.
  6. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  7. Bonds & Fixed Income

    Bond Yield Curve Holds Predictive Powers

    This measure can shed light on future economic activity, inflation levels and interest rates.
  8. Bonds & Fixed Income

    How does face value differ from the price of a bond?

    Discover how bonds are traded as investment securities and understand the various terms used in bond trading, including par value, market price and yield.
  9. Bonds & Fixed Income

    Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate in the secondary market.
  10. Trading Strategies

    How long will it take for a savings bond to reach its face value?

    Learn essential information about U.S. savings bonds along with an explanation of the unique characteristics of this popular investment instrument.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center