Bond Equivalent Yield (BEY)
What it is:
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 â 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 to measure your annual return if you plan to hold a particular bond until Calculatormaturity.]