Question

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An investor buys a security at a bank discount rate of 0.046 with 180 days to...

An investor buys a security at a bank discount rate of 0.046 with 180 days to maturity. The investor's bond equivalent yield on this investment is _____.

0.0466

0.0471

0.0118

0.0477

0.046

Solutions

Expert Solution

A bond yield is a return generated for an investor from that bond i.e. all the future cash flows from that bond. So by buying a security at a discount rate of 0.046 or 4.6% means the return generated is 0.046 per currency invested.

Let say we are buying a bond of par value 100, at 95.4 (which is 4.6% discounted).

So the return generated from the bond = (100-95.4)/100 = 4.6%

Hence the bond yield will also be the same i.e 4.6% or 0.046

The answer will be option E.

jeff jeffy answered 2 years ago
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