YTM & BEY in 2014 Fixed Income new Reading 54

CFA Level I Fixed Income
#1

2014, CFAI text, Vol 5, P.416

  1. There are many definitions of YTM (Monthly, Quarterly, Semiannual, Annual compouding). Then, when just “YTM” is mentioned, which is refered to ?

  2. Is it that BEY = YTM (Quarterly compouding) x 2 ?

  3. What is the yield on Price-Yield Curve ?

#2

Unless otherwise stated, assume that all yields are expressed as BEY; thus, if they merely mention YTM, it’s YTM expressed as BEY. (Note: YTM can be expressed using any yield convention: MMY, EAY, BDY, BEY. The point is that bondsters tend to write all yields as BEY.)

BEY = 2 × effective semiannual yield. How you arrive at the effective semiannual yield is irrelevant: whatever they give you, get from that to effective semiannual yield, then double it. If they give you a bond with quarterly compounding, then you compute the effective _ quarterly _ yield, compound that for two quarters to get the effective semiannual yield, then double that to get BEY. If they give you a bond with monthly compounding, then you compute the effective _ monthly _ yield, compound that for six months to get the effective semiannual yield, then double that to get BEY.

See #1, above: it’s bond-equivalent, yield to maturity (YTM expressed as BEY, as opposed to YTM expressed as EAY, for example).

#3

So, BEY = YTM (Semiannual compounding on 2014, CFAI text, Vol 5, P.416) x 2 ? Do you have this book ?

#4

I don’t have it yet. I’m waiting patiently.

#5

I don’t have it yet. I’m waiting patiently.

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Please look at the new readings (R54 and R55, particularly) in detail once you got it. There are many updates in the new readings (and deletes), including the definitions of BEY for money market securities.

#6

look at the page 426 with the formula 12th, and reading through the first part of 427th page, you may see : A bond equivalent yield is a money market rate stated on a 365-day add-on-rate basis

Turn back to page 402: yield to maturity is the internal rate of return on the cash flows - the market discount rate

In my opinion, the BEY is the benchmark ( or whatever) that you can convert to for comparison between different instruments (CD, BA …) example 10

in this Reading 54 i only see the yield curve which provide YTM in vertical and Time to Maturity in horizontal, what is price-yield curve??

By the way, i am fighting with this reading 3 continuous days and keep moving :smiley: