coupon-equivalent rate business definition

An alternative measure of yield that is used to make securities usually quoted on a discount basis comparable with those quoted on the more usual return on the amount invested. Stating interest at the coupon-equivalent rate is useful for securities, such as Treasury bills and commercial paper, sold at discounts from face value. As an example, a $10,000, 91-day Treasury bill selling for $9,750 is usually quoted at: [($10,000 - $9,750) ÷ $10,000) × (360 days ÷ 91 days) = 9.89 % However, the coupon-equivalent rate calculated on the amount of money invested is: [($10,000 - $9,750) ÷ $9,750] × (360 days ÷ 91 days) = 10.14%. See also bank-discount basis.