Am I seeing two formulas? The bond equivalent yield in corporate finance is stated as the HPY times (365\days)…should it not be to the power of (365/days to maturity)? Or is this an effective bond yield? Cfa1 pm mock q. 73
Yes, two identical names for 2 different yield measures:
BEY in Corporate Finance: MMY on a 365 year basis: HPY * 365/D (used to compare costs of short-term financing) BEY in Quants: effective annual rate on a semiannual bond basis: ((1+EAY)^1/2 - 1) *2
Both measures are < EAY Regards, Oscar
thats oscar…appreciated…so for QM …we could find the holding period yield and put it to the power of (365/days)
IF however we are given the annualized rate of return…we need to convert same to a semi annual effective rate (by taking the annualized rate and putting it to the power of (1/2) and times by 2 as the bond is expressed as twice the semi annual effective yield?