Hi, a bit confused of the following. For a 91-day $100,000 US T-bill sold at a discounted rate of 7.91%, calculate the purchase price and the bond equivalent yield. The book calculates the purchase price using 360 days and the bond equivalent yield using 365 days. Both are bonds, why the hell use different days to calculate? Thx, Hui
There is a bit of inconsistency in the CFAi text, if you look at the formula in corporate finance, it uses the 365 days formula, but when you look at the bond discount yield as calculated in the discounted cash flow applications in volume I, the BEY is the doubled semiannual, and it says this is the practice in the US bond market.
So to be clear, should I use 365 for bond equivalent yield? 360 for US T-bill discount-basis yield? 360 for money market yield? Any other 360 vs. 365 related issues should I be careful? Thanks.
You got it right.
There are lots of different conventions - just gotta know them for the exam.
I don’t have my books with me but I believe that in Fixed Income they provide this breakout. You are correct in your assumptions though.
365 for EAY EAY = (1 + HPR)^(365/t)
How do we calculate this then? (1000000-(100000/1.0791))/(100000/1.0791)*365/91??? Thx
P = T-bill Purchase Price = $100,000 - [7.91% * (91/360) * $100,000] Bond Equivalent Yield = [($100,000 - P) / P] * (365/91) Money Market Yield = [($100,000 - P) / P] * (360/91)
hyang Wrote: ------------------------------------------------------- > P = T-bill Purchase Price = $100,000 - [7.91% * > (91/360) * $100,000] > > Bond Equivalent Yield = [($100,000 - P) / P] * > (365/91) > > Money Market Yield = [($100,000 - P) / P] * > (360/91) Ah there we go. Thx. Im rusty on these ones.