Why need to use for calculationg EAY 365 / t (eg. semiannual yield to maturity)?
Question: The effective annual yield (EAY) for an investment is 8.0%. Its bond equivalent yield is closest to: A 8.00%. B 7.85%. C 8.16%.
Correct answer:
EAY = (1 + YTM)365/t – 1 Semiannual yield to maturity, YTM = (1 + 0.08)0.5 – 1 = 0.03923 = 3.923% Bond equivalent yield = 2 × YTM = 2 × 3.923% = 7.85%