Bond Equivalent Yield Calculator

Created by Wei Bin Loo
Reviewed by Dominik Czernia, PhD candidate and Jack Bowater
Based on research by
Refet S. Gürkaynak, Brian Sack, and Jonathan H. Wright The U.S. Treasury Yield Curve: 1961 to the Present Federal Reserve Board (June 2006)
Last updated: Jul 22, 2022

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.

What is the bond equivalent yield (BEY)? The bond equivalent yield calculator

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.

How to calculate bond equivalent yield (BEY)? Bond equivalent yield formula

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;
  • 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.

  1. 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.

  1. 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.

  1. 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.

The bond equivalent yield in practice. Why is bond equivalent yield useful?

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.

FAQ

What is a bond?

A bond is a debt security, usually issued by a government or a corporation, that is sold to investors. The investors will lend the money to the bond issuer by buying the bond. The investors will then receive their returns by receiving coupons throughout the life of the bond as well as the face value when the bond matures.

What is face value?

The face value is defined as the amount of money the bond investor will receive at the maturity date if the bond issuer does not default. It is also called the principal. It is also the last payment a bond investor will receive if the bond is held to maturity.

What is a coupon?

A coupon is considered to be the interest payment of a bond. It is defined as the product of the coupon rate and the face value of the bond.

Does bond equivalent yield equal yield to maturity?

The short answer is no, bond equivalent yield doesn't equal yield to maturity. The yield to maturity is the annual rate of return of a bond investment, taking into account both the returns from coupon and principal payments. On the other hand, the bond equivalent yield only considers the principal return.

How do I find the bond equivalent yield?

You can calculate the bond equivalent yield in four steps:

  1. Determine the bond price.
  2. Determine the face value of the bond.
  3. Determine the number of days to maturity of the bond.
  4. Apply the bond equivalent yield (BEY) formula:

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

Wei Bin Loo
Bond price
$
Face value
$
Number of days to maturity
day(s)
Bond equivalent yield (BEY)
%
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