Yield Function in Excel

Excel Yield Function is used to calculate on a security or a bond which pays the interest periodically, the yield is a type of financial function in excel which is available in the financial category and is an inbuilt function which takes settlement value, maturity, and rate with bond’s price and redemption as an input. In simple words the yield function is used to determine the bond yield.

Syntax

Compulsory Parameters:

Settlement: The date on which the coupon is purchased by the buyer or the date on which bond is purchased or the settlement date of the security.
Maturity: The maturity date of security or the date on which the purchased coupon expires.
Rate: Rate is the annual coupon rate of security.
Pr: Pr represents the security price per $100 stated value.
Redemption: Redemption is the redemption value of security per $100 stated value.
Frequency: Frequency means a number of coupons paid per year i.e. 1 for an annual payment and 2 for semiannual and 4 for quarterly payment.

Optional Parameter:

The optional parameter is always appearing in [] in an excel yield formula. Here the Basis is an optional argument so it comes as [basis].

[Basis]: Basis is an optional integer parameter that specifies the day count basis used by the security.

The possible values for [basis] are as follows:

How to use Yield function in excel? (Examples)

You can download this YIELD Function Excel Template here – YIELD Function Excel Template

Example #1

Bond Yield calculation for quarterly payment.

Let’s consider the settlement date as 17^th May 2018 and the maturity date is 17^th May 2020 for the purchased coupon. The rate of interest per annum is 5%, price is 101, redemption is 100 and payment terms or frequency is quarterly then yield will be 4.475%.

Example #2

Bond Yield calculation in Excel for Semi-annually payment.

Here the settlement date is 17^th May 2018 and the maturity date is 17^th May 2020. Rate of interest, price and redemption values are 5%, 101 and 100. For semiannually payment frequency will be 2.

Then output yield will be 4.472% [considered basis as 0].

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Example #3

Bond Yield calculation in Excel for a yearly payment.

For yearly payment let’s consider the settlement date is 17^th May 2018 and the maturity date is 17^th May 2020. The rate of interest, price and redemption values is 5%, 101 and 100. For semiannually payment frequency will be 1.

Then output yield will be 4.466% considered basis as 0.

Things to Remember

Below are the error details which can be come across in Bond Yield excel function due to type mismatch:

#NUM!: There may be two possibilities for this error in the bond yield in Excel.

If the settlement date in yield function is greater than or equal to maturity date then #NUM! Error occurs.
Invalid numbers are given to rate, pr, and redemption, frequency, or [basis] parameters.
1. If rate < 0 then yield in Excel returns the #NUM! Error.
2. If pr <=0 and redemption <= 0 then yield excel function returns the #NUM! Error.
3. If the given frequency is not 1,2 or 4 then yield excel function returns the #NUM! Error.
4. If basis < 0 or if basis > 4 then yield excel function returns the #NUM! Error.

#VALUE!:

If any of the given parameters are non-numbers.
Dates are not provided in proper date format.

Microsoft excels stores the date sequence from date 1^st January 1900 as number 1 and 43237 days for date 17^th January 2018.