Definitions are important an example of other weirdness with bond definitions. US Money market dealers, who deal in bonds with less than 1 year to maturity, use something called bank discount rates, where the bank discount rate, q, is the interest rate in decimal form that solves the following equation:

P=FaceValue(1qn360)

Where n is the number of days to maturity, and 360 is used as the number of days in the year. Suppose a US dealer agrees to a quoted rate of 4% for a term of 90 days for a zero with a $100,000 face value, what is the price of the bond?

On the day of issue, suppose the bond-equivalent yield of a quarterly coupon-paying bond is 12%. What is the effective annual rate?