A bank discount basis is used by financial institutions to quote prices for fixed-income securities being sold at a discount.
The quote is presented as a percentage of face value (discount divided by face value), using a 360-day-count as a full year, and assuming there are twelve 30-day months in a year, so 360 divided by the number of months x 30.
Example:
A bond has a face value of $10,000. It's due in 3 months. The price of the bond (what it is selling for today) is $9,900. To figure out the bank discount basis, we take the discount divided by the face amount:
10,000 - 9,900 = 100 = the discount
10,000 = face amount
100/10,000 = .01
It's due in 3 months, so 3 months x 30 days in a month = 90 days. We have already said there is a 360-day year, so 360/90 = 4
.01 X 4 = .04 or 4%
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