Explanation

The bond equivalent yield (BEY) for a semiannual pay bond is calculated as:

BEY = 2 × Semiannual Yield

This is because semiannual pay bonds make coupon payments twice per year. The bond equivalent yield annualizes the semiannual yield by simply doubling it, without accounting for compounding.

Let's analyze each option:

A. equal to the effective annual yield. - Incorrect The effective annual yield (EAY) accounts for compounding: EAY = (1 + Semiannual Yield)² - 1. Since BEY = 2 × Semiannual Yield, and (1 + Semiannual Yield)² - 1 > 2 × Semiannual Yield for positive yields, EAY > BEY.

B. more than the effective annual yield. - Incorrect As explained above, BEY is actually less than EAY because BEY doesn't account for compounding.

C. equal to double the yield per semiannual period. - Correct This is the definition of bond equivalent yield for semiannual pay bonds.

Key Points:

1. Bond Equivalent Yield (BEY) = 2 × Semiannual Yield
2. Effective Annual Yield (EAY) = (1 + Semiannual Yield)² - 1
3. For any positive yield: EAY > BEY
4. BEY is a simple annualization method used for comparison purposes, while EAY reflects the actual compounded return.

Example: If a bond has a semiannual yield of 3%:

• BEY = 2 × 3% = 6%
• EAY = (1.03)² - 1 = 1.0609 - 1 = 6.09%

Thus, BEY (6%) is less than EAY (6.09%).