DR的理解

问题如下：

Explain why a money market discount rate greater than zero understates the rate of return to an investor and understates the cost of borrowed funds for the issuer.

解释：

For a money market instrument, the discount rate is calculated as

The denominator for the second term is FV, not PV. In theory, an interest rate is the amount earned divided by the investment amount (PV), not the maturity value (FV), which includes the earnings. So long as DR is greater than zero, FV will be higher than PV. Therefore, by design, a money market discount rate understates the rate of return to the investor, and it understates the cost of borrowed funds to the issuer.