Suppose a company purchases $10 million of 180-day commercial paper issued by KING Capital, a large finance company, for a price of $9,902,759. Calculate the bond equivalent yield on the commercial paper.

Please round the final answer to three decimal places in percentage form.

The bond equivalent yield (BEY) is calculated using the following formula:

\[
\text{BEY} = \left( \frac{\text{Face Value} - \text{Purchase Price}}{\text{Purchase Price}} \right) \times \left( \frac{365}{\text{Days to Maturity}} \right) \times 100
\]

### Given values:
- Face Value = \$10,000,000
- Purchase Price = \$9,902,759
- Days to Maturity = 180 days

### Step-by-step calculation:

1. **Difference between Face Value and Purchase Price**:
   \[
   10,000,000 - 9,902,759 = 97,241
   \]

2. **Divide by Purchase Price**:
   \[
   \frac{97,241}{9,902,759} \approx 0.009822
   \]

3. **Annualize the yield (using 365 days in a year)**:
   \[
   0.009822 \times \frac{365}{180} \approx 0.019927
   \]

4. **Convert to percentage form**:
   \[
   0.019927 \times 100 = 1.993\%
   \]

### Final Answer:
The bond equivalent yield is **1.993%**.

Would you like further details or have any questions?

Here are 5 related questions for exploration:
1. How does the bond equivalent yield compare to the simple interest rate?
2. What role does the number of days to maturity play in yield calculations?
3. How would a shorter maturity period affect the bond equivalent yield?
4. What other methods can be used to calculate yield on short-term instruments?
5. How does bond equivalent yield differ from yield to maturity?

**Tip:** Always check the time basis (e.g., 360 vs 365 days) for accurate yield calculations.

Suppose a company purchases $10 million of 180-day commercial paper issued by KING Capital, a large finance company, for a price of $9,902,759. Calculate the bond equivalent yield on the commercial paper. Please round the final answer to three decimal places in percentage form.

Learn how to calculate the bond equivalent yield (BEY) on a 180-day commercial paper issued by KING Capital, purchased for $9,902,759. This step-by-step guide covers essential finance concepts like yield calculation and annualization. Suitable for undergraduate finance students.

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