Various BEY calculations - please someone clarify!!!

Hi All!

I’m getting crazy with the BEY calculations.

I understand from Quants that BEY= [(1+EAY)^1/2 - 1] x 2

where EAY= (1 + HPY)^365/days - 1

And also clear that in Corporate Finance they calculate it HPYx365/days.

But now I see in Fixed Income (Section 15/54.) there are 2 questions in the EOC which calculate it HPYx365/days, and they call this equation AOR (BEY). Or I totally misunderstood this 2 questions.

What is this? Do I totally misunderstand something? How many calculation methods there are for BEY and which should be applied for which topic?

Thanks in advance for some light in the tunnel of BEY…

I think there are two BEY calculations in the curriculum.

One in quants and the other one in Corp Fin.

The two equations you wrote are perfect. The one in quants computes the six month yield and annualize it by multiplying it by 2. The one in Corp fin annualizes the HPY by multiplying it by (365/days). It is used to standardize different yields on short term instruments corporates use to finance.

This is as per my understanding but i too need some clarification.

By the way, How much have you completed? Just curious.

Yes but Fixed Income brought up this question again in the section 15/54. I think we cannot quote exact question and answer but rephrased simplified and the numbers changed it goes like:

A 365-day year bank certificate of deposit has an initial principal amount of USD 90 million. The redemption amount at maturity is USD 100 m. Number of days is 300. Calculate bond equivalent yield.

In the solution they calculate the HPY multiply it with 365 and divide with number of days.

So exactly like in the CF topic. And it bothers me because it is very confusing that right in the Fixed Income topic they show a calculation very not “correct” in the fixed income world.

I’m not your typical CFA student. I don’t study for career advancement hopes (I’m 40 this year) so I started studying Feb 2013 a few hours per week, sat for June 2013 just out of curiosity and came out band 7 having covered cca. 30% of the material.

I go again this June, I’m taking it more seriously (but I have work and private life, too).

And I’m not going in the “normal order” of the topics. By now I’m finished with all but Quants and Econ (just started Quants) but I need to work on practices A LOT (because I’m very slow especially in fin. reporting).

Have no decent backgorund, either.

Respect Moosey!!! Three cheers for you buddy.