What Is a 7-Day Annualized Yield
7-day annualized yield is a measure of the yearly rate paid to investors of an interest-bearing account (like money market accounts). This amount is based on the returns earned over a 7-day period.
This financial term is also known as 7-day annualized return.
Why Are 7 Day Annualized Yields Important?
The 7-day annualized yield provides investors with a method to compare interest-bearing accounts' returns. The measure tells investors what the fund would yield in a year if it continued on its current earnings trajectory. Without this (and other standardized/required disclosures), accounts would be able to manipulate their yield calculations.
Note: The SEC strictly defines the 7-day annualized yield formula and use. It also provides strict guidelines for calculating the effects of dividend reinvestment, realized gains and losses, nonrecurring fees, and dividend taxes.
How to Calculate 7 Day Annualized Yield
To calculate seven-day yield, you’ll need to find the difference between the current price and the price from seven days ago. Then, multiply by the annualization factor).
7-Day Annualized Yield = ((A-B-C)/B) x 365/7
A = The value of an account at the end of the 7-day period
B = The value of an account at the beginning of the 7-day period
7 Day Annualized Yield Example
Let's assume Company XYZ money market fund needs to calculate its 7-day annualized return. If one share of the fund was worth $20 at the beginning of the week, $20.05 at the end of the week, and one week's worth of fees totaled $0.04, then by using the formula above, we can calculate that the XYZ fund's 7-day annualized yield was:
Yield = (($20.05 - $20- $0.04)/$20) x 365/7
= 0.02607 or 2.61%