Descriptive Vs. Inferential Statistics

Statistics is the science of analyzing data. When you are presented with the daily closing prices of a stock for the past one year, how do you make sense of this data? Using the tools and techniques offered by statistics, you can analyse the data in various ways. For...

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Convert One Yield to Another

If we have HPY, EAY or MMY, we can use it to convert it to the other two. Continuing with our previous example, let’s say the money market yield is 10.11% and the holding period is 90 days. This is the annualized yield from the asset on a 360-day year basis but it...

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Money Market Yield

The money market yield, also known as the CD-equivalent yield, allows the quoted yield on a T-bill to be compared with an interest-bearing money market instrument. Money market yield uses 360 day year for calculation. In our T-bill example, we can calculate MMY as...

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Effective Annual Yield for Money Market Instruments

For a money market instrument such as a T-bill, Effective Annual Yield is the annualized value of the Holding Period Return and is calculated using the following formula: In our T-bill example, the HPR was 2.53%. If the holding period was 90 days, we can calculate the...

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Holding Period Yield (HPY)

For investments, the Holding Period Yield (HPY) or Holding Period Return (HPR) refers to the total return earned from an investment or an investment portfolio over the holding period, that is, the period for which the asset or portfolio was held by the investor. Where...

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Bank Discount Yield

T-bills are quoted on a bank discount yield basis. The bank discount yield is calculated using the following formula:   Let’s take an example. The quoted price for a 90-day T-bill is USD 975,342 with a face value of USD 1 million. The bank discount yield will be...

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Yield Measures for Money Market Instruments

In addition to issuing long term bonds, governments also issue short-term instruments such as Treasury bills (T bills) of up to one year maturity. T-bills do not carry a coupon, but are sold on a discount basis. For example, the US Treasury, UK government and the...

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How to Calculate Annualized Returns

When we make investments, we invest our money in different assets and earn returns for different periods of time. For example, an investment in a short-term Treasury bill will be for 3 months. We may invest in a stock and exit after a week for a few days. For the...

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Money-weighted Returns

We learned about arithmetic returns and geometric returns. However, the problem with these measures is that they do not consider the amount of investment made in each period. For example, in the first year, we may have an investment of USD 5,000 while in the second...

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