Staying up all night just to memorize formulas for finance is not
a good solution. Because the set of formulas you memorize today will be
forgotten by tomorrow. Remembering the
logic behind the formula helps a lot.
For instance,
Money market yield (rMM) is simply annualized version of Holding period yield (HPY).
(considering 360 days a year)
So, rMM
= (HPY) (360/t) ........................ (i)
On the other hand
the difference between Bank discount yield and Money market yield is one is
based on Face value (F) and the other is based on purchase price (P0). So, we just take
the bank discount yield (rBD) and convert the ratio as if it was calculated by taking
purchase price. So another formula for money market yield becomes
rMM =
(rBD) (F/P0) .................................(ii)
However, the most
commonly used formula for Money market yield is derived in the following way
rBD = (D/F) (360/t)
or, rBD = ((F-P0)/F)*(360/t)
or, F/P0
= 360 / (360 - (rBD * t)) ..............(iii)
Now replacing
(ii) with (iii)
rMM =
(rBD) (F/P0)
rMM =
360 * (rBD) / (360 - (rBD) (t)) .......(iv)
The formula
number (iv) is the most used formula for Money Market Yield, however, it comes
from certain financial and mathematical logic.
So the hush-hush
is understand the logic.
Cheers!