I am very much confused by the different definitions or calculating formulas of the “Bond Equivalent Yield” indicated in the Quantitative Methods, Corporate Finance and Fixed Income readings.
It seems to me that the correct definition shall be : Effective Semiannual Yield x 2
Any comment ? Thanks in advance !
It’s not surprising that you’re confused, for the definitions are inconsistent.
That is the correct definition, from Quantitative Methods and Fixed Income.
The definition in Corporate Finance is incorrect. However, if they ask a question about BEY in the Corporate Finance section on the real exam, use the definition from the Corporate Finance readings.
You’re welcome in arrears.
S2000magician,
Thank you for your response !
I will follow your suggestion on the exam. But what I am also concerned is which definition is applied in practice, namely, in money market. I wonder that If the definition in Corporate Finance is applied, the BEY will be not comparable in reality.
My suggestion is that it’s better to confirm with CFA Institute regarding this and I think you are the best one who can discuss with CFA Institute. Would you please do so ? Thanks !
S2000magician,
I took a look at the 2014 new readings of “fixed income”. It seems that the definition of “BEY” for money market securities and capital market securities are different. The definition of “BEY” on P.427 (2014 Reading 54) is same as that in Corporate Finance.
However, the last paragraph in the reading 6 of QM stated : In money markets, if we annualized a six-month period yield by doubling it, in order to make the result comparable to bonds’ YTM we would also say that the result was a bond-equivalent yield.
I am very much confused again and I will like to have your comments ! Thank you !
I’m going to be getting a copy of the 2014 curriculum. Once I do, I’ll peruse all of this and get back to you.