Page 99 - CFA - Day 1 & 2 Course Notes
P. 99
LOS 7.f: Convert among holding period Session Unit 2: Discounted Cash Flow Applications
yields, money market yields, effective
annual yields, and bond equivalent yields.
Holding period yield to effective annual
yield—the EAY is equal to the annualized HPY
based on a 365-day year. Now that we have
computed the HPY, simply annualize using a
365-day year to calculate the EAY as follows:
Note that to convert the EAY back into the HPY, apply the reciprocal of the exponent to the
EAY. This is the same as taking one plus the EAY to the power (t/365). For example, we can
convert the EAY we just calculated back to the HPY as follows:
