 This topic has 5 replies, 2 voices, and was last updated Oct17 by CFAcharterwannabe.

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Hello All,
I have two questions:
#1 A bank deposit for 100 days is quoted with an addon yield of 1.5% based on a 360day year. Calculate BEY and the yield on a semiannual bond basis.Addon yield = (HPY) * (360/t) ; with yield = 1.5%; t=100;
HPY = 0.41667%
Now, I would get EAY from HPY.
1 + EAY = (1 + HPY)^(365/100)
EAY = 1.52925%
Now, I will get ESAY (Effective Semiannual yield):
ESAY = (1 + EAY)^½ – 1
Therefore, ESAY = 0.7616%
Therefore, BEY is 2* ESAY = 1.52344%.
My answers are not equal to the official answers, which are BEY = 1.5208% and the annual yield on a semiannual bond basis = 1.5236%.
Any help?#2 I noticed one difference between how BEY is calculated in 2013 curriculum and in 2014 curriculum. For instance, 2013 curriculum, on page 494 of Book 5 calculates BEY exactly as above. However, 2014 curriculum, on page 427 Book 5, calculates BEY very differently. Curriculum 2014 states that the 90day commercial paper discount rate of 5.76% quoted for a 360day year converts to an addon rate for a 365 day year of 5.925%. This converted rate is called a BEY, or sometimes just an “investment yield.” (I believe this merely does a linear conversion from a 360day year to 365day year. ) Moreover, there are tonnes of question in the curriculum that follow this concept. This is very different from what was in 2013 curriculum.
Any thoughts? I would really appreciate your help.

@watchtower ok i have a question. Why are you following the 2013 curriculum? There have been quite a few changes especially in the Fixed Income Securities section between then and now. Looking at both will just confuse you.


@watchtower i wasn’t referring to your question at all. And why would I even think of saying there are errors in the curriculum?!! I just meant there have been a few changes in the LOS’s between 2013 and ’14. So it would be better to stick to the latest curriculum i.e. 2014. That’s all.


@watchtower alright so to answer your actual question, the first mistake that you are making is that we have to calculate bond equivalent yield which is based on a 365 days per yr basis. Here the rate is quoted for a bank deposit which is based on 360 days per yr.
So 1.5 × (365/360) = 1.5208%
Now calculate the add on yield for 100 days
1.5 × (100/360) = 0.4167%
Effective annual yield = 1.004167^(365/100) 1 = 1.5294%
Therefore, effective semiannual yield = 1.015294 ^ 1/2 1 = 0.7618%
Bond equivalent yield = 0.7618% × 2 = 1.5236%
Hope this will clear the confusion. And about the curriculum change, personally I just stick to the latest 2014. So can’t help with that.


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