CFA CFA General Bond equivalent yield(BEY) calculation

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Bond equivalent yield(BEY) calculation

  • This topic has 3 replies, 3 voices, and was last updated Mar-231:47 am by pranay95.
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    • Avatar of pranay95pranay95
        • CFA Level 1

        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.

        Can anyone please solve this?

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        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%

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