Yields

CFA Level I
#1

What is the right order of BDY MMY EAY BEY

I thought the order above was from least to greatest but there is a question on a mock exam that is making me question. It states that the discount basis yield provides teh highest yeild for a 90 day treasury bill

#2

Do the calculations:

A 90-day T-Bill selling at $990.

BDY = 4.00%

EAY = 4.16%

MMY = 4.04%

BEY = 4.12%

#3

how do u get the BEY of4.12%? i get 4.09%=(1000-990)/990*365/90 or did I miss something here?

#4

Hi Rainerh,

I believe you can get 4.12% with the following formula but please correct me if I am wrong S2000magician.

BEY: ((1+EAY)^.5)-1)*2

BEY: ((1.0416)^.5)-1)*2 = 4.12%

#5

Yup.

Or:

BEY = ((1 + HPY)^(182.5/90) – 1) × 2

You have to compute the semi-annual (182.5-day) _ effective _ (i.e., _ compounded _) yield, then double it.

#6

Guys,

In the Corporate Finance readings on short terms investements (within Reading no. 40, pg. 149) bond equivalent yield is computed just like in rainerh’s post, i.e. (Face value - Purchase price)/Purchase price x 365/days to maturity.

If you then read pg. 312 of the Quantitative Methods book, you will find a note (at the end of the reading, just before the Summary) that when dealing with money market instruments, we obtain the BEY using this simplified approach.

regards

#7

So it is always this ording always the case?

#8

This is true. In Corporate Finance I tell my candidates that this method is quite wrong, but that if they ask you a question about BEY in CF you have to do it that way. You don’t have to like it, however.

#9

Open up Excel and try some numbers. That’ll be a lot more useful to you than some off-the-cuff answer from us.

#10

So, do you mean that the formula of BEY in CF is actually wrong and the formula in QM shall be correct ? Why CFAI’s curriculum has such discrepancies ?

#11

That’s what I mean.

[quote=“alpha668”]

[quote=“S2000magician”]

  1. It’s written by a number of authors.
  2. It’s not well-edited.
#12

If one method is not correct, what should we expect on the test?

#13

The one published in that topic area.

I guess.

#14

Sorry, I come here because I consulted some professionals in fixed income field, they all said that the formula in reaging 40 of corporate finance is basically inconsistent with the definition of BEY. I just wonder why there is not any correction in CFAI’s errata.

#15

As a (former) professional in the fixed income field, I was well aware of that.

There have been a few other threads on this topic, wondering which formula for BEY one should use. In Corporate Finance, use the (stupid) formula there; everywhere else, use the correct (Quant, Fixed Income) formula.

#16

Would you please send an e-mail to CFAI requesting them to correct it ? I want to do so, but I think you shall have much bigger power as you are a charter holder and a former professional in fixed income.