What is the 'Discount Yield'
Discount yield is a measure of a bond's rate of return to an investor, stated as a percentage, and discount yield is used to calculate the yield on municipal notes, commercial paper and treasury bills sold at a discount. Discount yield is calculated as (par value  purchase price)[/par value] * 360/days to maturity, and the formula uses a 30day month and 360day year to simplify the calculation.
BREAKING DOWN 'Discount Yield'
Discount yield computes the investor's return on investment (ROI), which is generated by purchasing the investment at a discount, and by earning interest income. A Treasury bill is issued at a discount from par value (face amount), along with many forms of commercial paper and municipal notes, which are shortterm debt instruments issued by municipalities. U.S. Treasury bills have a maximum maturity of six months (26 weeks), while Treasury notes and bonds have longer maturity dates.How To Calculate Discount Yield
Assume, for example, that an investor purchases a $10,000 Treasury bill at a $300 discount from par value (a price of $9,700), and that the security matures in 120 days. In this case, the discount yield is ($300 discount)[/$10,000 par value] * 360/120 days to maturity, or a 9% dividend yield.
The Differences Between Discount Yield and Accretion
Securities that are sold at a discount use the discount yield to calculate the investor's rate of return, and this method is different than bond accretion. Bonds that use bond accretion can be issued a par value, at a discount or at a premium, and accretion is used to move the discount amount into bond income over the remaining life of the bond.
Assume, for example, that an investor purchases a $1,000 corporate bond for $920, and the bond matures in 10 years. Since the investor receives $1,000 at maturity, the $80 discount is bond income to the owner, along with the interest earned on the bond. Bond accretion means that the $80 discount is posted to bond income over the 10year life, and an investor can use a straightline method or the effective interest rate method. Straightline posts the same dollar amount into bond income each year, and the effective interest rate method uses a more complex formula to calculate the bond income amount.
Factoring in a Security Sale
If a security is sold before the maturity date, the rate of return earned by the investor is different, and the new rate of return is based on the sale price of the security. If, for example, the $1,000 corporate bond purchased for $920 is sold for $1,100 five years after the purchase date, the investor has a gain on the sale. The investor must determine the amount of the bond discount that is posted to income before the sale and must compare that with the $1,100 sale price to calculate the gain.

Discount Bond
A bond that is issued for less than its par (or face) value, ... 
Discount
The condition of the price of a bond that is lower than par, ... 
Discount Note
A shortterm debt obligation issued at a discount to par. Discount ... 
Bond Discount
The amount by which the market price of a bond is lower than ... 
Accrued Market Discount
The gain in the value of a discount bond expected from holding ... 
Market Discount
The difference between a bond's stated redemption price and its ...

Investing
Understanding Bond Prices and Yields
Understanding this relationship can help an investor in any market. 
Investing
Explaining Original Issue Discount
An original issue discount is the amount below par at which a bond or other debt instrument is issued. 
Investing
Find The Right Bond At The Right Time
Find out which bonds you should be investing in and when you should be buying them. 
Investing
Understanding Interest Rates, Inflation And Bonds
Get to know the relationships that determine a bond's price and its payout. 
Financial Advisor
Simple Math for FixedCoupon Corporate Bonds
A guide to help to understand the simple math behind fixedcoupon corporate bonds. 
Investing
Corporate Bonds: Advantages and Disadvantages
Corporate bonds can provide compelling returns, even in lowyield environments. But they are not without risk. 
Investing
How To Choose The Right Bond For You
Bond investing is a stable and lowrisk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.

How can I calculate the carrying value of a bond?
Learn what the carrying value of a bond means, how it can change and the easiest way to calculate a bond's carrying value ... Read Answer >> 
How is the term 'accretive' used in fixed income investments?
Find out how the word ''accretive'' can be used for fixed income investments that are issued at a discount, such as commercial ... Read Answer >> 
What types of fees apply to checking accounts?
Learn about the difference between a bond's coupon rate and its yield to maturity, and how the par value, coupon rate and ... Read Answer >> 
What is the difference between yield to maturity and the yield to call?
Determining various the various yields that callable bonds can provide investors is an important factor in the bond purchasing ... Read Answer >> 
Should investors focus more on the current yield or face value of a bond?
Find out when investors should focus on a bond's current yield versus its face value, including an example of how current ... Read Answer >>