This is an example from Schweser
A $1 million negotiable CD with 120 days to maturity is quoted with an add-on
yield of 1.40/0based on a 365-day year. Calculate the payment at maturity for this
CD and its bond equivalent yield.
Solution:
The add-on interest for the 120-day period is 120 / 365 x 1.40/0= 0.46030/0.
At maturity, the CD will pay $1 million x (1 + 0.004603) = $1,004,603.
My doubt is:
I did this to calculate the payment at maturity:
$1 million x (1+0.014)^(120/365)
Why am I wrong?
A $1 million negotiable CD with 120 days to maturity is quoted with an add-on
yield of 1.40/0based on a 365-day year. Calculate the payment at maturity for this
CD and its bond equivalent yield.
Solution:
The add-on interest for the 120-day period is 120 / 365 x 1.40/0= 0.46030/0.
At maturity, the CD will pay $1 million x (1 + 0.004603) = $1,004,603.
My doubt is:
I did this to calculate the payment at maturity:
$1 million x (1+0.014)^(120/365)
Why am I wrong?