computingAORMoneyMarketInstr: Calculates Add-on Rate (AOR) of Money Market Instruments.

In bondAnalyst: Methods for Fixed-Income Valuation, Risk and Return

Calculates Add-on Rate (AOR) of Money Market Instruments.

Description

Calculates Add-on Rate (AOR) of Money Market Instruments.

Usage

computingAORMoneyMarketInstr(pvMmi, fvMmi, daysToMaturity, daysInYear)

Arguments

pvMmi	A number.
fvMmi	A number.
daysToMaturity	A number.
daysInYear	A number.

Details

According to Adams and Smith (2019), bond yields-to-maturity are annualized and compounded. Yield measures in the money market are annualized but not compounded. Instead, the rate of return on a money market instrument is stated on a simple interest basis. In general, quoted money market rates are either discount rates or add-on rates. Although market conventions vary around the world, commercial paper, Treasury bills (a US government security issued with a maturity of one year or less), and bankers’ acceptances are often quoted on a discount rate basis. Bank certificates of deposit (repos) and indexes, such as Libor and Euribor, are quoted on an add-on rate basis. In light of the available information, the method computingAORMoneyMarketInstr() is developed to compute Add-on Rate (AOR) of Money Market Instruments for the values passed to its four arguments. Here, pvMmi is present value of the Money Market Instrument, fvMmi is future value of the Money Market Instrument (that is sale price and not the redemption amount), daysToMaturity is number of days till the maturity, and daysInYear is taken to be 365. For example, an output value of 0.04934 means that the rate of return, stated on a 365-day add-on rate basis, is 4.934 percent.

Value

Input values to four arguments pvMmi ,fvMmi, daysToMaturity and daysInYear.

Author(s)

MaheshP Kumar, [e-mail]

References

Adams,J.F. & Smith,D.J.(2019). Introduction to fixed-income valuation. In CFA Program Curriculum 2020 Level I Volumes 1-6. (Vol. 5, pp. 107-151). Wiley Professional Development (P&T). ISBN 9781119593577, https://bookshelf.vitalsource.com/books/9781119593577

Examples

computingAORMoneyMarketInstr(pvMmi=10000000,fvMmi=10060829,daysToMaturity=45,daysInYear=365)

bondAnalyst documentation built on Aug. 13, 2022, 5:05 p.m.