The bank discount rate on a 71-day T-bill is 4.86%. What is the bond equivalent yield on the T-bill?
Bank Discount Rate and Bond Equivalent Yield:
The bank discount rate is (Par - Price) / (Par * 360 / Days to maturity). It is used for short term financial instruments and can be compared to discount rates of longer-term bonds. The bond equivalent yield (BEY) s calculated for short-term fixed income securities such as T-bills in order to determine a yield that is comparable to annual yields on bonds.
Answer and Explanation:
The bond equivalent yield is 4.975%.
Assume a $100,000 par value for the T-bill. The actual par value may be different and does not affect the...
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from Introduction to Business: Homework Help ResourceChapter 24 / Lesson 12