The bond equivalent yield formula is used to determine the annual yield on a discount, or the zero coupons, bond. While making investment decisions, comparing the yield or returns on the investment choices in relative terms is important.
Bond Equivalent Yield = ((Par Value - Price) / Price) * (365 / d) * 100
A bond has a par value of $2,000, purchased at a discounted price of $1,900 and has 100 days to maturity.
According to the formula, Bond Equivalent Yield is:-
(($2,000 - $1,900) / $1,900) * (365 / 100) * 100
($100 / $1,900) * 3.65 * 100
0.0526 * 3.65 * 100
Bond Equivalent Yield = 19.21%
Created: Jun 10, 2018
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