The discount yield on a T-bill differs from the T-bill's bond equivalent yield (BEY)because
I. the discount yield is the return per dollar of face value and the BEY is a return per dollar originally invested.
II. a 360-day year is used on the discount yield and the BEY uses 365 days.
III. the discount yield is calculated without compounding,and the BEY is calculated with compounding.

Question

Quizplus · Accepted Answer

The first statement is correct as the discount yield is calculated based on the face value while the BEY is based on the purchase price. The second statement is also correct as the discount yield is based on a 360-day year while the BEY uses a 365-day year. However, the third statement is not entirely accurate as both the discount yield and BEY are calculated without compounding. Therefore, only statements I and II make the discount yield different from the BEY, making choice C the best answer.

The Discount Yield on a T-Bill Differs from the T-Bill's