ABC Corp. is calculating the equivalent annualized yields based on the 1.3 % Holding Period Yield of a 90-day loan. Correct ordering of the equivalent MMY, BEY, EAY ? MMY
Is it BEY
question 26 swcher exam 1 afternoon
No calculations are really necessary here since the MMY involves no compounding and a 360-day year, the BEY requires compounding the quarterly HPR to a semiannual rate and doubling that rate, and the EAY requires compounding for the entire year based on a 365-day year. A numerical example of these calculations based on a 90-day holding period yield of 1.3% is: the equivalent MMY is 1.3% × 360/90 = 5.20%, BEY is 2 × [1.013182.5/90 – 1] = 0.0531 = 5.31%, which is two times the equivalent effective semiannual rate of return, and EAY is 1.013365/90 – 1 = 0.0538 = 5.38%. Calculating the semiannual effective yield using 180 days instead of 182.5 does not change the order.