MMY BEY EAY

CFA Level I
#1

Jane Acompora is calculating equivalent annualized yields based on the 1.3% holding period yield of a 90-day loan. The correct ordering of the equivalent annual money market uield, effective annual yield and bond equivalent yield (BEY) is: A. MMY < EAY < BEY B. MMY < BEY < EAY C. BEY < MMY < EAY D. BEY < EAY < MMY I am coming out with BEY: 5.2??? I think im doing something wrong here MMY: 5.2% EAY: 5.37%

#2

I get B.

#3

MMM=HPR*360/t=1.013*360/90=4.05% EAY= (1+HPY)^365/t=5.4% BEY=2*semiannual yield=(1.013)^2-1*2=5.2%

#4

B is correct…i see what i did wrong Thanks!

#5

TokyoBBB Wrote: ------------------------------------------------------- > MMM=HPR*360/t=1.013*360/90=4.05% Should be 1.3% * 360/90 = 5.2% > EAY= (1+HPY)^365/t=5.4% > BEY=2*semiannual yield=(1.013)^2-1*2=5.2% which has a + epsilon

#6

Isn’t this order always true? (i.e. MMY

#7

TokyoBBB Wrote: ------------------------------------------------------- > MMM=HPR*360/t=1.013*360/90=4.05% this should be 1.3%*360/90 = 5.2% > EAY= (1+HPY)^365/t=5.4% > BEY=2*semiannual yield=(1.013)^2-1*2=5.2% Actually 5.23% So MMY

#8

DOH!

#9

kevin002, I think if the loan was 360 days? BEY will be less than MMY HPY = 1.3% MMY = 1.3%*360/360 = 1.3% BEY = (1.013)^.5 - 1 * 2 = 1.296% Am I wrong with the gemoetric compounding? otherwise for a 90 day loan using no compounding will yield BEY = MMY

#10

EAY is greatest because the HPY has the full effects of exponential progession. (365/t) BEY next because it has a mixture of the HPY geometric and exponential progression. (HPY^x)*2 MMY is smallest because it is only influenced by the effects of geomtric progression. (HPY)*(360/t)