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What is Bond Equivalent Yield (BEY)?

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 Does Bond Equivalent Yield (BEY) Work?

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 Does Bond Equivalent Yield (BEY) Matter?

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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Paul Tracy
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.