I’m working through the 5th Schweser mock, and the solution to question 77 on the morning paper states the bond equivalent yield can be calculated as:
[(Face Value - Market Value)/ Market Value] * 365/90
Surely this is incorrect, and to calculate the BEY you should take the HPY [(Face Value - Market Value)/ Market Value] and raise it to the power of 180/90 and then multiply by two to get BEY on an annual basis?
It seems to me that they’ve just calculated the HPY and then restated it on an annual basis, not found the BEY? Any guidance would be welcome!
This formula comes from Corporate Finance. It’s wrong, but it’s what’s in the curriculum. If they ask you a question about BEY in Corporate Finance, you’d better use this formula.
Feel free to write (in the exam booklet) that the formula’s stupid. Don’t autograph it, however. And don’t take a lot of time.