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# CFA Level I, Corporate Finance, Bond Equivalent Yield and Discount-Basis Yield

Consider an 85-day \$ 1,000,000 U.S. T-bill sold at a discount rate of 8.5 percent. Calculate

a) the bond equivalent yield and

b) the discount-basis yield.

Solution:

a) The bond equivalent yield, however, computes to

bond equivalent yield = (face value – purchase price)/purchase price·(365/number of days to maturity)

= (1,000,000 – 79,930,56)/979,930.56·(365/85)

= 20,069,44/979,930.56·4.2941

= 0.0879

= 8.79 percent.

b) The discount-basis yield can be computed as

discount-basis yield = (face value – purchase price)/face value·(360/number of days to maturity)

= (1,000,000 – 79,930,56)/1,000,000·(360/85)

= 20,069.44/1,000,000·4.2353

= 0.085

= 8.5 percent.

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