Business, Legal & Accounting Glossary
Discount instruments are money market instruments that are issued at a value less than (or “discounted” from) their stated face value and mature for their face value.
In fixed income markets, there are a variety of instruments that, rather than paying coupons, accumulate value to maturity. They are issued at some price and later mature for a greater value. This article focuses on the short-term money market forms of these instruments. See the article zero-coupon bonds for the longer-term forms.
The money market instruments fall into two categories.
This distinction is illustrated in Exhibit 1.
Accrual instruments are quoted with yields. Discount instruments can be quoted on a price or yield basis. Yields are calculated differently for the two types of instruments, so a yield quoted for one is not comparable to a yield quoted for the other.
Yields for accrual instruments are quoted as simple interest rates. Yields for discount instruments are quoted as discount yields. If comparisons with other instruments’ yields need to be made, a discount instrument’s yield may be converted to a bond-equivalent yield.
In the money market, examples of accrual instruments include
Discount instruments include
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This glossary post was last updated: 3rd March, 2022 | 0 Views.