HPY and BDY

CFA Level I Quant
#1

Will the Holding period yield always be greater than the Bank discount yield?

It seems like it will always be greater as long as there is some sort of discount in place.

Thanks

#2

I would think BDY would usually be greater than HPY.

Example

Tbill priced at $98,500 with Face Value of $100,000 with 120 days to maturity

rBD=100,000-98,500=(1,500/100,000)*(360/120)=4.5%

HPY=100,000-98,500/98,500=1,500/98,500= 1.5228%

Bank discount yield assume no compounding only simple interest rates. I would imagine rBD is usally greater than HPY.

#3

BDY is an annualized yield.

HPY is a yield for the holding period: 10 days, 90 days, 180 days, 365 days, 2,000 days, whatever.

Sometimes the one is bigger, sometimes the other.