Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Bond Equivalent Yield (BEY)

What it is:

The bond equivalent yield (BEY) is a formula that allows investors to calculate the annual yield from a bond being sold at a discount.

How it works (Example):

The bond equivalent yield enables investors to compare the yield of a short-term security purchased at a discount with that of a bond with an annual yield.

Calculated as: ((Par Value – Purchase Price) / Purchase Price) * (365 / Days to Maturity)

The BEY for a bond with 100 days to maturity, a par value of $1000, and purchased at the discounted price of $975 would be calculated as follows:

(($1000 - $975) / $975) * (365 / 100) = 0.0935

The BEY would be 9.35%.

Why it Matters:

The BEY calculation serves as a useful tool for determining the annual yield of an investment that does not make annual payments. This analysis allows investors to compare fixed-income securities whose payments are not annual or are selling at a discount to be compared with securities with annual yields.

[Use our Yield to Call (YTC) Calculator to measure your annual return if you hold a particular bond until its first call date.]

[Use our Yield to Maturity (YTM) Calculator to measure your annual return if you plan to hold a particular bond until maturity.]

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