EAY vs BEY about, before, practice, effective

bchadwick

Saw this talked about before but cant find it.

As it relates to effective borrowing or lending when using calls and puts...

EAY is the rate computed ^ 365/days of loan

BEY is EAY^.5 *2 ?????

Any help appreciated....ive seen both on practice tests.

strikethree

Schweser Book 3 Page 19

BEY = Rate * Number of Periods in a Year

EAR = (1+ Rate) ^ Number of Periods in a Year - 1

I seem to be forgetting stuff - have to go back and look, a lot of tension building up!!

mar350

june2009 Wrote:
-------------------------------------------------------
> Saw this talked about before but cant find it.
>
> As it relates to effective borrowing or lending
> when using calls and puts...
>
> EAY is the rate computed ^ 365/days of loan
>
> BEY is EAY^.5 *2 ?????
>
> Any help appreciated....ive seen both on practice
> tests.

Yes. EAY is compounded. So if you have an annual EAY, you uncompound it by ^0.5, as you have done, and then get BEY by multiplying by 2, to get the full year BEY.

justin88

awesome...thanks guys