The effective annual yield for an investment is 10 percent. What is the yield for this investment on a bond-equivalent basis? A) 10.00%. B) 9.76%. C) 9.96%. D) 4.88%. B is correct First, the annual yield must be converted to a semiannual yield. The result is then doubled to obtain the bond-equivalent yield. Semiannual yield = 1.10^.5 – 1 = 0.0488088. The bond-equivalent yield = 2 x 0.0488088 = 0.097618. ------------------------ Is bond-euivalent basis in the above means holding period yield(HPY)?Here is the formula for EAY Effective annual yield = (1 + HPY)^365/t - 1 I did not understand how is semi annual yield was derived. They are raising to the power 0.5. Does it mean they used 360 day basis(180/360)? Semi HPY = (1+ effective annual yield) ^180/360
just some formulas: EAY (effective annual yield) is a compounded rate. semi annual yied = (1+EAY)^0.5-1 Also, if you are asked to get a monthly yield by using EAY, the formula is monthly yield = (1+EAY)^1/12-1 Bond Equivalent yield is double semi annual yield.
Is this always the case? If we are asked about bond-equivalent yield, we should assume semi-annual rate? Dreary
yes, this is what the defintion of bond equivalent yield is, I am just reading it in book5, page 86.
usually the bonds are considered semiannual compounding if not stated other way i think the easiest is to use the BA2plus calc 2nd Iconv effective =10 c/y=2 nominal =9.76