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Bond Equivalent Yield

The bond equivalent yield formula is used to determine the annual yield on a discount, or zero coupon, bond

When making investment decisions, comparing the yield or returns on the investment choices in relative terms is important. The return on a 6 month bond would obviously be less than on a 12 month bond, ceteris paribus. Likewise, the percentage of return would be less yet equally profitable when considering the length of investment. The bond equivalent yield formula can be used to compare these two investments with different maturities in relative terms.

f-p p*365 d

Here,d=days of maturity,f=face value,p=price.

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