Bond Equivalent Yield

CFA Level I Fixed Income
#1

Regarding question 19 in CFAI Fixed Income practice material, I cannot figure out the proper bond equivalent yield for Instrument “A”. I was able to get the other two, but the details for A include:

Quoted Rate 5.78%

Quotation Basis 360

Day Convention: Discount Rate

What is the BEY of a 90 day money market instrument?

Calculated PV = 100 x [1- ((90/360) x 0.0578)] = 98.555

BEY: [(100- 98.555) / 98.555] x (360/90) = 5.86%

Answer is listed as 5.946%.

I used the same formula and was able to match the answers appropriately for the other two instruments in question, but cannot get the numbers to match up for this one. Can you please help me verify?

#2

You’re multiplying by 360/90; you should be multiplying by _ 365 _/90.

(Note: despite the name, this isn’t a real bond-equivalent yield: to get that you’d have to convert the HPY to an EAY (using a 365-day year), then to an effective semiannual yield, then double that to get a real BEY. I hate that they’re inconsistent in the definitions of terms, but we’re stuck with it, alas.)

#3

Thank you very much. I was duped, it seems, into using the 360 day quotation basis.

#4

My pleasure.