The annual percentage yield is the effective annual rate of return. It is calculated by the resultant percentage that assumes funds will remain in the investment vehicle for a full 365 days.
Importance of Bond Yield
The annual percentage yield is the rate of interest earned or accrued over the course of a year or 365 days. It takes into account the effect of compounding. The annual percentage yield gives you a better sense of an investment's true return, and of a loan's true cost.
APY = (1 + r/n)n - 1
r = stated annual interest rate (nominal interest rate)
n = number of compounding periods per year
An account has a rate of 6% compounded monthly and the number of times compounded would be 12 one year (12 months). Therefore, according to the formula, the annual percentage yield (APY) is 6.1%.