Question
How does a money market discount rate differ from an add-on rate in its price base?
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Answer
Discount rate uses face value; add-on rate uses purchase price.
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Question
How is bond equivalent yield defined for money market instruments in this text?
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Answer
Add-on rate stated on a 365-day basis.
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Question
Why must investors be careful when comparing money market yields across instruments?
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Answer
Different conventions can quote different yields for the same cash flows.
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Question
Why is the add-on rate a better measure of actual return than the discount rate?
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Answer
It is based on purchase price, the investor's actual cash outlay.
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