Which of the following provides the best return for an investor considering a 182-day investment?
a. 7.50% yield quoted on an ACT/365 basis
b. 7.42% yield quoted on an ACT/360 basis
c. 7.21% discount rate quoted on an ACT/365 basis
d. 7.18% discount rate quoted on an ACT/360 basis
Answer is Option b
ACT represents actual number of days = 182 days
a. 7.50% yield quoted on an ACT/365 basis
So yield for 182 days = 7.50% * (182/365) = 3.7397%
b. 7.50% yield quoted on an ACT/365 basis
So yield for 182 days = 7.50% * (182/365) = 3.7512%
c. 7.21% yield quoted on an ACT/365 basis
So yield for 182 days = 7.21% * (182/365) = 3.5951%
d. 7.18% yield quoted on an ACT/360 basis
So yield for 182 days = 7.18% * (182/360) = 3.6299%
Comparing all the 4 yields for 182 days, Option b has the maximum yield and hence that should be preferred
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