Personal Finance & Money Asked on July 7, 2021
I’m looking at "FIDELITY GOVERNMENT MONEY MARKET" and there’s two numbers: 0.01% 7-Day Yield and 0.75% Average Annual Total Returns. I don’t understand the difference between these two because money market fund doesn’t really have much capital gains/returns. All of the earnings are from yield, so shouldn’t the two be the same?
0.01% 7-Day Yield * $10000 investment $1 after a year. Isn’t the 0.75% Annual Total Return used for the same thing?
The 7-day yield is what it yields in 7 days. To calculate the yield in 365 days, use the compound interest formula:
(1 + 0.01/100)^(365/7) = 1.0052
So if it yields (exactly) 0.01% in 7 days, it yields 0.52% in 365 days.
However, a problem here is that 0.01% could be anything between 0.005% and 0.015%. So the 365-day yield could be anything between:
(1 + 0.005/100)^(365/7) = 1.0026
(1 + 0.015/100)^(365/7) = 1.0079
or anything between 0.26% and 0.79%.
I suspect the 0.75% annual total return is the most accurate figure here. The 0.01% yield for 7 days is told with such low precision that it's practically useless, as you can see from the calculations.
Answered by juhist on July 7, 2021
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