easy · Principles of Finance

When converting a discount-basis yield to a bond-equivalent yield (BEY), why is the BEY generally higher?

1. BEY is a nominal rate while discount yield is an effective rate.
2. BEY uses the actual purchase price in the denominator and a 365-day year.
3. BEY assumes continuous compounding while discount yield assumes annual.
4. BEY includes an inflation premium that discount yields ignore.

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