Bond Equivalent Yield Question

[archived_user]

I changed the question around so it’s not the same as the mock but how are we supposed to know that this is based on a semiannual basis? I know that EAY is (1+YTM)^(365/t) -1 but since no discount period is given, how do we handle this?
The effective annual yield (EAY) for an investment is 9.0%. Its bond equivalent yield is closest to:

 

[archived_user]

8.80613%

 

[archived_user]

@thanhnguyen504 Isn’t that just annualizing it based off the fact that its semiannual? Wouldn’t the BEY for that be (1 + 0.0880613/2)^2? What was the answer?

 

[archived_user]

I believe this is correct: (someone confirm)
BEY = 2 * [(1+EAY)^.5-1]
so BEY = 2 *[1.09^.5-1] = 8.8061%

 

[archived_user]

EAY= (1+HPR)^365/n
BEY=((1+EAY)^0.5)*2

 

[archived_user]

Makes sense, thanks.

 

[archived_user]

thanhnguyen504 wrote: EAY= (1+HPR)^365/n
BEY=((1+EAY)^0.5)*2

Let’s not get sloppy here:
EAY= (1+HPR)^(365/n) − 1
BEY=((1+EAY)^0.5 − 1)*2

 

[archived_user]

S2000magician wrote:

thanhnguyen504 wrote: EAY= (1+HPR)^365/n
BEY=((1+EAY)^0.5)*2

Let’s not get sloppy here:
EAY= (1+HPR)^(365/n) − 1
BEY=((1+EAY)^0.5 − 1)*2

+1

 

[archived_user]

S2000Magician, for my first contribution to AF I want to say you are my hero, and every question I’ve googled somehow leads to a proper explanation by you

 

[archived_user]

FinHawk wrote: S2000Magician, for my first contribution to AF I want to say you are my hero, and every question I’ve googled somehow leads to a proper explanation by you

You’re very kind.

 

[archived_user]

Looks like the “other” BEY from corporate finance/WC management is just simple annualising HPY on a 365 day year