Yield basis

A basis of quoting the return on an instrument by reference to its current value (rather than by reference to its terminal value).

For example when an instrument is quoted - on a yield basis, one period before its maturity - at a yield of 10% per period, this means that it is currently trading at a price of 100% DIVIDED BY [1 + 10% = 1.10] = 90.91% of its terminal value.

(The periodic discount rate on this instrument is 100% LESS 90.91% = 9.09%. So if the same instrument had been quoted on a discount basis, then the quoted discount rate per period = 9.09%.)

The relationship between the periodic yield (r) and the periodic discount rate (d) is: d = r/[1+r]

So in this case: d = 0.10/[1 + 0.10 = 1.10]

= 9.09%

See also

• Discount basis
• Effective annual rate
• Nominal annual rate
• Periodic yield