CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types
A money market instrument has 120 days to maturity and is priced at 980 per 1,000 face value. Using a 365-day year, its bond equivalent yield is closest to:
The bond equivalent yield is closest to 6.21%. The 120-day holding period return is 1,000/980 − 1 = 2.04%, and multiplying by 365/120 annualizes it on a simple-interest basis to about 6.21%.
- A2.00%
- B6.00%
- C6.21%Correct
Explanation
Holding period return = 1,000/980 − 1 = 2.0408%. Annualizing with 365/120 = 3.0417 gives 2.0408% × 3.0417 = 6.207%, about 6.21%. The 2.00% option ignores annualization, and 6.00% uses the discount-yield-like 2/980 shortcut with 360/120 on face value: 2%×3.
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