Can anyone please explain the difference between in add on yield and discount yield ? Use of a numerical value would help a lot
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Discount yield is an yield calculated as a percentage of F. It’s formula is (F-P/F)*100*(360/n)
Add on yield is calculated as a percentage of P
Like HPY- Holding period yield = (F-P/P)*100
MMY, EAY, BEY all are derived using HPY so all these are also add on yield as their base is also P and not F
Do not overstes. If you want to calculate a percentage change. You calculate
(Baad wala- pehele wala)/ pehele wala * 100 that’s add on yield.
Discount yield is (baad wala- pehele wala)/ baad wala*100*360/n.. it’s used just for convenience, same as when we get a discount on our purchase we also get it on SP rather than CP coz it is quite simple for a layman to get it.
Hope it helps!