Jane Cavell has just purchased a 90-day US Treasury bill. She is familiar with yield quotes on German Treasury discount paper but confused about the bank discount quoting convention for the US T-bill she just purchased.
A. Discuss three reasons why bank discount yield is not a meaningful measure of return.
B. Discuss the advantage of money market yield compared with bank discount yield as a measure of return.
C. Explain how the bank discount yield can be converted to an estimate of the holding period return Cavell can expect if she holds the T-bill to maturity.