Glossary: FI Module 08 — Yield and Spread Measures (Floating-Rate & Money Market)

Term	Definition
Floating-rate note (FRN)	A bond with a coupon that resets periodically: Coupon = Reference rate + Quoted margin
Quoted margin (QM)	The fixed spread over the reference rate specified in the FRN’s indenture
Required margin	The spread over the reference rate that the market currently demands for the FRN’s risk
Discount margin (DM)	The constant spread over the reference rate that equates the FRN’s PV to its market price
Reset date	The date on which the FRN coupon is recalculated based on the current reference rate
Bank discount yield (BDY)	Money market yield based on par value and 360-day year: $r_{BD}=(D/FV)\times (360/\text{Days})$
Money market yield (MMY)	Yield based on purchase price and 360-day year: $r_{MM}=(D/PV)\times (360/\text{Days})$
Bond equivalent yield (BEY)	Yield based on purchase price and 365-day year: $r_{BEY}=(D/PV)\times (365/\text{Days})$
Discount	The difference between par and purchase price for money market instruments: $D=FV-PV$
Add-on rate	Interest calculated on the initial principal (PV), as opposed to the discount basis

See also: Yield Measures, FI Formulas