Fixed income instrument

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Fixed income instrument

Postby chandniwadhwani92 » Sun Oct 12, 2014 7:37 am

Difference between equivalent add on yield and effective add on yield. Plz clear dis doubt with example

What is difference between bond equivalent yield and bond annualized yield

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Fixed income instrument

Postby edupristine » Mon Oct 13, 2014 8:16 am

Difference between Bond Equivalent Yield and Bond Annualized Yield

Bond Equivalent Yield is used in case of those fixed income securities whose payments are not annual, so that they can be compared with securities with annual yields.
If the face value of a bond is Rs 100, BEY = [(100 – Purchase Price)/Purchase Price] * [365/Days to maturity
Both the Bond equivalent yield and the bond annualized yield are annualized returns, but they are calculated differently and used for different purposes.
BEY is used in T- Bill quotes whereas Bond annualized yield is used in other cases. Bond annualized yield is the simple yearly yield taking compounding into consideration.

For effective add on yield and equivalent add on yield, please give me the question where these terms have been used/ asked to calculate.

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