why is BEY calculated differently from an EAY with two holding periods

CFA Level I
#1

Here is how a BEY is calculated given an EAY to start:

[(1+EAY)^182/365] -1 … that gives the rate for 6 months. It is a 6month holding period yield (HPY), yes? ( It is calculated the same way as if you have an EAY and would like to break it down to the HPY.)

SO, why is it when I want to turn a HPY into an EAY I calculate it this way [(1+HPY)^365/period] -1… But when I calculate the BEY I just multiply the 6month rate by 2?? I don’t calculate [(1+6month rate)^2] -1

In summary… why is a BEY calculated differently than an EAY of 2 6month holding periods?

#2

Because BEY is not an effective annual yield.

You can read this to fully understand it.

http://financialexamhelp123.com/bond-equivalent-yield-bey/

#3

^^yep, that article pretty much read my mind :slight_smile:

#4

It _ was _ written by a magician.