easy · Principles of Finance time-value-of-money
When converting a discount-basis yield to a bond-equivalent yield (BEY), why is the BEY generally higher?
- BEY is a nominal rate while discount yield is an effective rate.
- BEY uses the actual purchase price in the denominator and a 365-day year.
- BEY assumes continuous compounding while discount yield assumes annual.
- BEY includes an inflation premium that discount yields ignore.
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