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Converting Money Market Yields

In cases where the selected bond is priced using money market yields during the final coupon period, the annual, semi-annual, quarterly, and monthly equivalent yields can be computed directly using the following relationship:

Equation Template

 

yc = calculated compound yield (which has the same frequency as ym.

ym = annual money market yield (simple interest).

r = number of days from the settlement date to the next nominal coupon payment date (based on the appropriate accrual convention).

s = number of days in the relevant coupon payment period (based on the appropriate accrual convention).

h = number of coupon periods in a year.

If h = 1, then the calculated yield assumes annual compounding; if h = 2, 4 or 12, then the calculated compound yield is expressed with semi-annual, quarterly, or monthly compounding respectively.

 

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