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

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%

Question Of The Week - Quantitative Methods (2) - CFA Level 1

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- AdaptPrep
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  29 Aug 2018 at 7:59 am
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  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
- AdaptPrep
  Participant
  - Undecided
  01 Sep 2018 at 9:44 pm
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  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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