The Comprehensive Guide to

Passive Income Investing

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How to Become Financially Independent Through Passive Income Investing

## 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

Where:

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

C = A proportional week's worth of fees (if fund fees vary with the size of the account, assume the account is equal to the fund's mean or median account size)

## 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%

## Is 7-Day Annualized Yield the Same as 7-Day Effective Yield?

It is important to understand that the 7-day annualized yield is not the same as the 7-day effective yield. The 7-day annualized yield merely annualizes the simple yield. The 7-day effective yield is usually a little higher because it assumes income from the fund is compounded).

Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.