A $5,000 face value bond with 49 days to maturity is currently selling for $4,936. What is the bank discount yield?
A) 9.40%
B) 9.10%
C) 8.46%
D) 10.49%
E) 7.42%

Question

Quizplus · Accepted Answer

The bank discount yield (BDY) is calculated using the formula: BDY = (Discount / Face Value) * (360 / Days to Maturity). The discount is the difference between the face value and the purchase price, which is $5,000 - $4,936 = $64. Plugging the values into the formula gives: BDY = ($64 / $5,000) * (360 / 49) = 0.0128 * 7.3469 = 0.094, or 9.40%.

A $5,000 Face Value Bond with 49 Days to Maturity