Hi Guys,
I’m becomming at little confused with AOR Formula, AOR = (year/days) x [(FV –PV)/PV].
I have been using 365 days in a year to obtain the BEY. However, in the below for example the quesion uses 360 days in a year to calculate - any thoughts? Please help, just when I thought I was beginning to understand and there was a sense of calm, bam!! Any help would be greatly appreciated.
A 90-day banker’s acceptance trades at a discount rate of 3.95%. Assuming a 360-day year, what is the bond-equivalent yield (BEY) of this banker’s acceptance?
A. 3.88%.
B. 3.99%.
C. 4.05%.
Answer calculated as below - note they use 360 days in year as opposed to 365
AOR = (360/90) x [(100 –99.01)/99.01]