Final answer:
The bond equivalent yield (BEY) is 3.10% and the effective annual rate (EAR) is 3.104%.
Step-by-step explanation:
The bond equivalent yield (BEY) is a measure of the yield on a short-term debt instrument, such as commercial paper, that allows it to be compared to longer-term bonds. To calculate the BEY, we need to convert the discount yield into a semi-annual yield and then double it. In this case, the discount yield is 3.10%, so the semi-annual yield is 3.10%/2 = 1.55%. To convert it to a bond equivalent yield, we double it: 1.55% * 2 = 3.10%.
The effective annual rate (EAR) takes into account the compounding of interest over the course of a year. To calculate the EAR, we use the formula: EAR = (1 + r/n)^n - 1, where r is the annual interest rate and n is the number of compounding periods per year. In this case, since the commercial paper has a 180-day maturity, we have two compounding periods in a year (semi-annual). Plugging in the values, we get: EAR = (1 + 0.031/2)^2 - 1 = 3.104%.