Calculating Bond Equivalent Yield (BEY) for a $1,000 Treasury Bill | CTFA Exam Solution

B

The Bond Equivalent Yield (BEY) is a method for calculating the yield on a discount security, such as a Treasury bill. The BEY assumes that the security has a face value of $1,000, and it calculates an annualized yield based on the discount price at which the security was purchased. The formula for BEY is:

BEY = (face value - purchase price) / purchase price x (365 / days until maturity)

Using this formula, we can calculate the BEY for the 13-week Treasury bill in the question.

Face value = $1,000 Purchase price = $960 Days until maturity = 13 weeks = 91 days

BEY = (1,000 - 960) / 960 x (365 / 91) BEY = 40 / 960 x 4.01 BEY = 0.166

So the BEY for the Treasury bill is 0.166, which is equivalent to 16.6 percent.

Therefore, the closest answer is B) 16.7 percent.