D
Answers in 6-8 hours.
D
D is indeed the correct answer. Well done mates!
There are 2 definitions of Bond Equivalent Yield in CFAI text. 1. One in Corporate Finance, which is BEY = HPY * 365/days 2. And other in FI and Quant, which is BEY = (((1 + EAY)^0.5) -1) * 2, that is twice the Semi Annual yield. If you go by first definition, then D is correct. And if you go by 2nd definition then C is correct. Now, in the exam, you would want to use the definition, based on the section where that question is appearing. If it is appearing in Corporate Finance section, use 1st definition, elsewhere use 2nd definition. This is what I was told by my class instructor, when I was taking classes for my L1. Beatthecfa, please give your comments.
Rus1Bus, can you explain further how both these will lead to different values. Wouldn’t (((1 + EAY)^0.5) -1) be = HPY for a semiannual bond. Also, 365/days would in essence be approximately 2 for semiannual period. So shouldn’t they lead to same values. Definitely and interesting question.
Ok when I made this question, it was pretty obvious to me that you were meant to compare the yields using formulas on short term instruments (from the reading on working capital management) rusIbus… When you’re evaluating short term securities use the formulas from CF that talk about working capital (ST) capital management. If you are dealing with long term coupon bearing instruments then use the formulas in the TVM section… Jimmy: Most importantly… hows Ethics going?
Yes, beatthecfa, it makes perfect sense. Thanks. That is why I wish you were my instructor 
@beatthecfa…ethics is much better now. Getting more that 70%. You suggestion of going through the CFA notes and doing all questions there helped immensely. Thanks, you rock!
Im really glad Ive been of help… now come on! Two weeks…finish off the job
Dude you gotta give us a chance to get even. Give us more questions!!! Please?
rus1bus Wrote: ------------------------------------------------------- > There are 2 definitions of Bond Equivalent Yield > in CFAI text. > > 1. One in Corporate Finance, which is > BEY = HPY * 365/days > > 2. And other in FI and Quant, which is > BEY = (((1 + EAY)^0.5) -1) * 2, that is twice the > Semi Annual yield. > > If you go by first definition, then D is correct. > And if you go by 2nd definition then C is > correct. > > Now, in the exam, you would want to use the > definition, based on the section where that > question is appearing. If it is appearing in > Corporate Finance section, use 1st definition, > elsewhere use 2nd definition. This is what I was > told by my class instructor, when I was taking > classes for my L1. > > Beatthecfa, please give your comments. Sorry guys, I totally messed it. I take back the above explanation. That is, whichever way you calculate BEY, it will always be greater than MMY for a 90 day security as was there in the question. Even if you take the EAY way, you are compounding the interest up to half year and then multiplying by 2. This will always be greater than MMY because of compounding to 1/2 year. Sorry for creating a confusion. Jimmikaw, you were correct in disagreeing with my earlier explanation.
Best of luck rus! This whole forum’s best wishes are with you for your CTP exam tomorrow
BUMP…this is a great thread! Beatthecfa, you think you’d be able to post some more of these questions? You really contribute a lot to the forum!
Wow Ruby! How far back did you go to dig up this thread. We have a really good community of candidates in December. People helping each other, asking good questions, and using the search function before posting. I might put some up for you guys…let’s see. Back then I was planning on creating my own practice exams. Still thinking about it so let’s see.
lol … That was some questions !!! beatthecfa don’t you think it’s too early ?? Or when should we expect you to come up with those questions again ?
PLEASE put up some challenge questions for us!!!
Lo and behold I found this thread using the search function. In any case, whether it’s a full exam or just a few questions here and there, it would be great help!
I’ll probably put up a few questions in May Using the search function is key to getting into my good books, so you’re already there!
Damn! Those questions were great especially the one on yield measures. I was clueless!