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%
Related or Semi-related Video
Finance: What is a CUSIP Number?119 Views
Finance, a la shmoop. What is a CUSIP number? Close that's a Cusack number
867-53-09, yeah we know there. So yeah you know when you go to the grocery
store and the cashier swipes your apples eight times across that little bar code [Apple being scanned]
reader thingy and it doesn't work again and again and again and then she finally [Error coming up on the screen]
pulls back the plastic from where the Apple was tagged hunts for her glasses [Cashier putting on her glasses]
and then visually finds the number associated with that Apple and then just
manually types it in. Well that's the fruit equivalent of a CUSIP number [Guy talking in a supermarket]
A CUSIP number is well just that only applied to securities, stocks, bonds even
muni bonds. CUSIP stands for committee on uniforms security identification [The meaning of each letter is shown]
procedures, and is basically just the serial number system of securities, but [CUSIP definition written on a 100 dollar bill]
has nine digits, the first six represent the original issuer of the security like
coca-cola shares when it went public a gazillion years ago. Then the next two [The fix 6 digits are highlighted]
characters refer to that type of security at hand like is it a basic
equity bond, muni bond and the ninth digit is riboflavin yeah it's just there
to be sure the other digits are all accurate and assures that there's no [The 3 digits meaning are shown]
replication in any of the other CUSIP index number sets. So yeah CUSIP numbers
make the securities easier to track because it's awfully hard to get a
microchip into one of them. [Microchip pulled out of a bond certificate]
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