Risk Management Basics
 Fixed Income
 Credit Analysis  What Credit Analyst Look for? 5 C's  Ratios
 Equity Research vs Credit Research  Know the difference!
 Yield Curve Slope, Theory, Charts, Analysis (Complete Guide)
 Bond Pricing
 Coupon Bond
 Coupon Bond Formula
 Zero Coupon Bond
 Duration Formula
 Coupon Rate Formula
 Carrying Value of Bond
 Sinking Fund Formula
 Coupon Rate of a Bond
 Convertible Securities
 What are Treasury Bills?
 Repurchase Agreement
 Treasury Bills vs Bonds
 Coupon vs Yield
 Coupon Rate vs Interest Rate
 Credit Rating Process  A Complete Beginner's Guide
 Asset Backed Securities (RMBS, CMBS, CDOs)
 Loss Given Default  LGD  Examples, Formula, Calculation
 Top 7 Best Fixed Income Books
 ABS and MBS Index  Complete Beginner's Guide
 Top 10 Best Treasury Management Book
 Top 10 Best Credit Research Books
 Convexity of a Bond  Formula  Duration  Calculation
 Payment in Kind Bond  PIK Definition  Interest  Example
 Subordination Debt  Meaning  Example  Types  Risks
 Top 10 Best Books  Bonds Market, Bond Trading, Bond Investing
 Bonds vs Debentures
 Secured vs Unsecured Loan
 Bills of Exchange vs Promissory Note
 Bills of Exchange  Meaning  Examples  Top Features
 Promissory Notes
 Secured Loans
 Unsecured Loans
 Bonds
 Hypothecation
 Subordinated Debt
 Fallen Angel
 Bond Equivalent Yield Formula
 Junior Tranche
 Credit Analyst Interview Questions and Answers
 Debt Covenants  Bond Covenant Examples  Positive & Negative
 Negative Covenants (Restrictive)
 Sinking Fund
 Bond Sinking Fund
 Negotiable Instruments
 Credit Spread
 Bond Pricing Formula
Related Courses
Bond Equivalent Yield Formula
An investor needs to know the bond equivalent yield formula. It allows the investor to calculate the annual yield of a bond, sold at a discount.
Here’s the bond equivalent yield formula –
Here, d = days to maturity
Recommended Courses
Bond Equivalent Yield Formula Example
Let’s take a practical example to illustrate bond equivalent yield formula.
Mr Yamsi is confused about two bonds he is considering for investments. One bond is offering $100 per bond as a purchase price and another is offering $90 per bond. For both the fixedincome securities, they would offer $110 per bond after 6 months (for the first) and after 12 months (for the second). Which one Mr Yamsi should invest in?
This is a classic case of being confused between two fixed income securities.
However, we can easily find out the BEY to see which investment is more fruitful for Mr Yamsi.
4.7 (487 ratings)
For the first bond, here’s the calculation –
Bond Equivalent Yield Formula = (Face Value – Purchase Price) / Purchase Price * 365 / d
 Or, BEY = ($110 – $100) / $100 * 365 / 180
 Or, BEY = $10 / $100 * 2.03
 Or, BEY = 0.10 * 2.03 = 20.3%.
Now, let’s calculate the BEY for the second bond.
BEY = (Face Value – Purchase Price) / Purchase Price * 365 / d
 Or, BEY = ($110 – $90) / $90 * 365 / 365
 Or, BEY = $20 / $90 * 1 = 22.22%.
By calculating the BEY for both of these bonds, we can easily say that Mr Yamsi should invest into the second bond.
However, if time becomes a factor, then Mr Yamsi may choose the first bond, because is 6 months it is offering a staggering 20.3% return.
Explanation of Bond Equivalent Yield Formula
Let’s look closely at the formula for bond equivalent yield. If you look closely, you would see that there are two parts of this formula for bond equivalent yield.
 The first part talks about the face value, the purchase price. In short, the first part depicts the return on investment for the investor. For example, if an investor pays $90 as a purchase price for the bond. And at maturity within 12 months, he would receive $100; the return on investments would be = ($100 – $90) / $90 = $10 / $90 = 11.11%.
 The second part of this formula for bond equivalent yield is all about the time horizon. If the maturity for the bond is 6 months from now; then d would be 180 days. And the second part of formula would result into – 365 / 180 = 2.03.
Use of Formula for bond equivalent yield
As an investor, you have many options. When you have so many options, you would only choose the option which will provide you with the most return.
That’s why you need to use the bond equivalent yield formula to find out whether a particular investment is better or worse than the other investments.
However, for calculating the formula for bond equivalent yield, you need to remember that these investments don’t offer annual payments. And you can use this formula for fixed income securities. For example, if you find out about a bond and it is offering discount on the purchase price, first be sure to find out the formula for bond equivalent yield and then go ahead (if you want to).
Bond Equivalent Yield Calculator
You can use the following Bond Equivalent Yield Calculator
Face Value  
Purchase Price  
d  
Bond Equivalent Yield Formula =  
Bond Equivalent Yield Formula = 



Bond Equivalent Yield or BEY in Excel (with excel template)
Let us now do the same example above in Excel. This is very simple. You need to calculate BEY for both of these bonds.
You can easily calculate the BEY in the template provided.
Recommended Articles:
This has been a guide to Bond Equivalent Yield (BEY) Formula. Here we discuss how to calculate Bond Equivalent Yield (BEY) along with practical examples and excel templates. You may also learn more about fixed income with these articles below –