In the CFA text, Reading 6, the formula for BDY.
is
r_{BD}=\frac{D}{F} imes\frac{360}{t}
Where D is defined as F - P_0, the formula did not count in the D_1. Is this because BDY is only applicable to T-bills?
If applied to interest earining bond, then shouldn’t the formula be
r_{BD}=\frac{D+D_1}{F} imes\frac{360}{t}
ie r_{BD}=\frac{P_1-P_0+D_1}{P_1} imes\frac{360}{t}
I’ve never seen BDY applied to anything other than zero coupon bonds (such as T-bills). I wouldn’t concern myself with trying to compute BDY for anything else; it’s certainly not going to appear on the exam.
(As a side note, this website doesn’t understand Latex, so your formulae appear quite cryptic.)
Don’t want to sound argumentative, but how do you know for certain that’s it’s not going to be the exam? I’m asking because if there is a way to find out what will be in the exam and what is not, will be very beneficial for my study.
Apart from having taught CFA review courses for the last 10 years, I’ve read the curriculum front to back.
They apply BDY only to the types of securities to which BDY is applied in the real world: zero coupon bonds.
I agree with S2000magician. BDY is only applying to the T-bill since market convention. you can’t argue why it is never applying to coupon bearing debt, just becuase the convention of yied calculation for T-bill. When calculator was not popular, choosing face value as denominator meant a lot.