The Yield on a Discount Basis

question 15

Multiple Choice

The yield on a discount basis:

• A)Will overstate the return on a Treasury bill versus using yield to maturity since they are sold at discounts
• B)Will understate the return on Treasury bills versus yield to maturity since they are sold at premiums
• C)Will understate the return on Treasury bills versus yield to maturity since they are sold at discounts
• D)Is the same as yield to maturity

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Definitions:

Bankers' Acceptance

A short-term debt instrument issued by a company but guaranteed by a bank, commonly used in international trade to facilitate transactions.

Letter of Credit

A document issued by a bank guaranteeing a buyer's payment to a seller within a specific timeframe and for a specific amount.

Cash Balances

The amount of cash or cash equivalents that a company or individual holds at a given time.

Marketable Securities

Financial instruments that can be easily converted into cash at a fair market value.