CFA CFA General Bond equivalent yield(BEY) calculation

# Bond equivalent yield(BEY) calculation

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• pranay95
Participant
• CFA Level 1
•      0

If interest is paid 5 times per year (number of periods), and the periodic interest rate is 0.93%, what is the bond equivalent yield, stated as a percent?

Hint: The periodic rate is the rate for the compounding period. If the bond compounded 12 times per year, the rate given above would be a monthly rate.

• mikey
Moderator
•       0

The bond equivalent yield (BEY) is a metric that lets you calculate the annual percentage yield of fixed income securities, even if they pay out in different periods, e.g. monthly, quarterly, or 5 times a year as per your example.

In other words – what is the equivalent annual % yield of this security?

The way I think about it is – if you had this security for one year (renewing as necessary), how much profit would you make from it?

So it says in your question that 0.93% is compounding at 5 times a year. So to calculate the profit you’ll get over a year:

Bond equivalent yield = 1.00935 = 1.047 = 4.7%

• pranay95
Participant
• CFA Level 1
•      0

it is incorrect.

• Zee Tan
Keymaster
• CFA Charterholder
•          0

Include the example answer and it would help people work it out.