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Up0
For a 6-month security that pays a coupon and face value at maturity, which of the following yield metrics would be the highest? Assume yield is positive.
- Bond-equivalent yield
- Holding period yield
- Effective annualized yield
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Up5
Let’s say the security costs
100 and pays 110 (100 face and 10 coupon) in 6 months.The holding period yield
would be:HPY = (P1 – P0 + D1) / P0 = (100 – 100 + 10) / 100 = 10%
The bond-equivalent yield
though is simply twice the semi-annual holding period yield, or 20%.The effective annual interest
rate for this security would be the annualized holding period yield:r = (1 + 0.1)^2 – 1 = 21%
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