Bond Equivalent Yield Calculator

We have prepared this bond equivalent yield calculator to help you calculate your bond investment's annual yield. This metric is very useful in analyzing the principal returns of your bond investments, especially for zero-coupon bonds.

This article will help you understand what the bond equivalent yield is and how to calculate it using the bond equivalent yield formula. We will also demonstrate some calculation examples to help you understand the concept.

The bond equivalent yield formula, also known as the BEY formula, is one of the many ways to analyze the return on a bond investments. To be more specific, the BEY compares the principal payment to the bond price. Thus, it tells you how much return you can get through receiving the principal after purchasing the bond.

As this metric focuses on the principal payment of a bond, it is particularly suitable to analyze bonds that do not pay coupons to their investors. These bonds are called zero-coupon bonds. We will explain this concept further with the bond equivalent yield calculation example below. Check our coupon payment calculator if you are more interested in bonds with coupons.

To explore the bond equivalent yield calculator, let's take Bond A issued by Company Alpha, as an example. It has the following data:

• Bond price: $980 (estimate it by our bond price calculator)
• Face value: $1,000; and
• Days to maturity: 300 days.

To calculate the bond equivalent yield, you need to perform the following 4 steps:

1. Determine the bond price.

   You can easily obtain the bond price of any bond on the market as they are all publicly available. In our example, the bond price of Bond A is $980.

2. Determine the face value of the bond.

   The face value of the bond is the principal amount you will receive when the bond matures. The face value of Bond A is $1,000.

3. Determine the bond's number of days to maturity.

   The days to maturity is defined as the number of days left until the bond matures. The days to maturity for Bond A is 300 days.

4. Calculate the bond equivalent yield (BEY)

   The last step is to calculate the BEY using the bond equivalent yield formula shown below:

   BEY = (face value - price) / price × (365 / days to maturity)

   Using the BEY formula, the BEY for Bond A is ($1,000 - $980 / $980) × (365 / 300) = 2.48%.

Don't worry if you are still feeling confused; just use our bond equivalent yield calculator to calculate it.

Now that we understand how to calculate the bond equivalent yield, let's talk about the importance of this metric:

• The bond equivalent yield calculation is most useful when analyzing zero-coupon bonds. This is because zero-coupon bonds do not pay any coupons to the investor.

• Thus, the bond equivalent yield can better represent the return of a zero-coupon yield as BEY only considers the principal payment of the bond.

• Also, when calculating the bond equivalent yield of a zero-coupon bond, the metric helps you compare the zero-coupon bonds to some financial securities with annual yields, such as bonds with coupon payments.