What is Daily Factor?
Daily factor is the amount of yield earned in a day.
How Does Daily Factor Work?
Interest Payment/ Market Price of Bond =
($1,000 x 10%)/ $750 = 13.333%
To calculate the daily factor, simply divide this rate by 365 days:
Daily Rate = 0.13333/365 = 0.000365 or .0365% per day
Why Does Daily Factor Matter?
Daily factors are important to retirees or other income-oriented investors who are focused on current cash flow from their portfolios. They help investors calculate how much interest they’ll earn in a day, and similarly, in a week, month, or other time frame. And although a daily factor may seem like a miniscule number, it can generate tremendous income when applied to large account balances.
It is also important to note that the daily factor excludes a key source of returns: the capital gains (or losses) the investor may realize when he or she holds the bond until it matures. It also ignores the time value of money.