Fixed Income

jazzbee15
Posts: 1
Joined: Sat Aug 08, 2015 3:56 am

Fixed Income

Postby jazzbee15 » Sat Feb 20, 2016 7:21 am

Q) The bond equivalent yield of a 180-day banker’s acceptance quoted at a discount rate of 4.25% for a 360-day year is closest to:

a) 4.31%.

b) 4.34%.

c) 4.40%.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: Fixed Income

Postby edupristine » Fri Mar 04, 2016 10:56 am

Ans. C is correct
Solution: PV = FV*(1-Days/Years*DR)
where PV= present value
FV= future value
Days= number of days between settlement
Year = number of days
DR = discount rate
PV = 100*(1-180/360*.0425)
=97.87
the bond equivalent yield= Years/days(FV-PVPV)
=365/180-.02171
=2.0277*.02171
=.044 or approximately 4.40%


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