one Q from schweser sample exam what’s BEY of a 90 day T-bill with a 1.15% HPY? and BEY of a 6-month certificate of deposit with a 2.31% HPY. T-Bill: [(1.0115^2)-1] *2=4.63% CD: 2.31*2=4.62% ------------------------------------------------------------------- my calculation of T-Bill: [1.0115^(365/2*90)-1] *2=4.69% BEY is based on 365-day year , not 360-day year. how do you think ?
I believe it would be… {[(.0115/3) + 1]^6} - 1 = 2.32% and the BEY would be double that which is 4.64%
wyantjs Wrote: ------------------------------------------------------- > I believe it would be… {[(.0115/3) + 1]^6} > - 1 = 2.32% and the BEY would be double that which > is 4.64% --------------------------------------------------------------- it’s a 90 days t-bill, only compound every 90 days, not every 30 days.
Yes, I understand that. Thank you so much for the clarification.
I am bit confused here. I thought BEY = HPY * 365/days to maturity. What am I missing?
Bonds are usually semi annual so to you find the effective rate for half a year, and you multiple it by 2. by having HPY*(365/days) you have the effective annual rate.
I have been refering to page 58 in Book #4 of swcheser.
kochunni69 Wrote: ------------------------------------------------------- > I have been refering to page 58 in Book #4 of > swcheser. ---------------------------------------------------------------- I am glad to see that you raised this confusion. Yes, I found the formula " BEY = HPY * 365/days to maturity" page 58 in Book #4 of > swcheser. pls also look at the professor’s Note: at top of P59, it says, " In Quantitative methods, the BEY was defined differently as 2 times the effective semiannual yield. actually, in this reading 46, Schweser follows CFAi 08’ curriculum volume4 P102 , " BEY = HPY * 365/days to maturity" is also there. in CFAi 08’ curriculum volume1, P233 and Vol5, P424~425, it says , " in general, when one doubles a semiannual yield to obtain an annual measure, one is said to be computing the measure on a bond-equivalent basis, and the computed yield is BEY" . and lots of examples in curriculums and schweser notes applies this rules. Schweser’s professor noticed above differences, and reminded us in P59 book4. so I guess we should follow this in most of the time. last time, I asked schweser instructor a similar Q of 2 different definition. He explanation, these definitions and formulas are not like natural science, not everyone in the world have exactly same understanding and opinions. in exam, we should follow the sample in notes respectively. it’s also hardly for them to explan clearly.
I am not sure if the following make any sense at all. The formula BEY = HPY *365/(Days to Matunity) work for securities with less than 180 days of maturity. The a reason being, BEY assumes semi-annual compunding. So for a 90 day T-bill, BEY is equal to the annualized holding period return. Does it make any sense at all?
in formula BEY = HPY *365/(Days to Matunity), there is no any compounding, is different from the formula in Quans session , like schweser profess’s note said. and the explanation from schweser sample exam doesn’t support this formula. T-Bill: [(1.0115^2)-1] *2=4.63% it compounds the 90 days t-bill, their only problem is 360-day year used, not 365-day year. schweser instructor said it’s minor difference between 360-day and 365-day in this Q. both are OK.