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180-day commercial paper can be bought at a 6.60 percent discount yield. What are the bond...

180-day commercial paper can be bought at a 6.60 percent discount yield. What are the bond equivalent yield (BEY) and the effective annual rate (EAR) on the commercial paper? (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 3 decimal places. (e.g., 2.161))

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Answer #1

BEY = Holding period yield * (365/Time to maturity)

= 6.60% * (365/180)

= 6.60% * 2.02778 = 13.383%

EAR = [1 + Holding period yield](365/Time to maturity) - 1

= [1 + 0.066](365/180) - 1

= 1.13838 - 1 = 0.13838, or 13.838%

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