# Money Market Yield

Money market yield is the rate of return on highly liquid investments with a maturity of less than one year. It is calculated by multiplying the holding period return with a factor of 360/t where t is the number of days between the issue date and maturity date of the investment.

Money market yield is a better indicator of rate of return than the bank discount yield, but it still lacks the compounding effect included in calculation of effective annual yield.

## Formula

Money market yield can be calculated using the following formula:

Money Market Yield = HPR × | 360 |

t |

Where **HPR** is the holding period return and **t** is the number of days between the issue date and maturity date.

Holding period return is the percentage total return.

Holding Period Return = | F − P |

P |

Money market yield equation can be modified as follows:

Money Market Yield = | F − P | × | 360 |

P | t |

Where **F** is the face value i.e. maturity value of the investment and **P** is the initial issue price.

### Converting Bank Discount Yield to Money Market Yield

If we know the bank discount yield, we can work out the money market yield using the following formula::

MMY = | 360 × BDY |

360 - t × BDY |

Where **BDY** is the bank discount yield.

## Example

In the example on bank discount yield we find out that BDY for the following T-bill is 1.32000%:

CUSIP | Security Term | Auction Date | Issue Date | Maturity Date | Price per $100 |
---|---|---|---|---|---|

912796NW5 | 13-Week | 12/11/2017 | 12/14/2017 | 3/15/2018 | 99.666333 |

There are two ways to calculate money market yield: (a) directly using the price and face value and (a) by adjusting the bank discount yield.

Money Market Yield = | $100 − $99.666333 | × | 360 | = 1.3244% |

$99.666333 | 91 |

MMY = | 360 × 1.32% | = 1.3244% |

360 - 91 × 1.32% |

Written by Obaidullah Jan, ACA, CFA and last modified on