CFA Practice Question

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CFA Practice Question

The bond equivalent yield of a 90-day banker's acceptance quoted at a discount rate of 4.5% for a 360-day year is closest to ______.
A. 4.42%
B. 4.48%
C. 4.61%
Explanation: PV = FV x (1 - 90/360 x 4.5%) = 98.875. Then the bond equivalent yield (AOR using a 365-day year) is AOR = (365/90) x (100 - 98.875)/98.875 = 4.61%.

By design, a money market discount rate understates the rate of return. The bond equivalent yield has to be higher than 4.5%, so C is the only possible answer.

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