Bond equivalent yield (BEY),
Definition of Bond equivalent yield (BEY):
However, by having BEY figures at their fingertips, investors can compare the performance of these investments with those of traditional fixed income securities that last a year or more and produce annual yields. This empowers investors to make more informed choices when constructing their overall fixed-income portfolios.
Income from a bond sold at a discount (see discount bond) as compared with the income from an interest paying bond (see coupon bond). It is the difference between the par values and purchase prices of the two types of bonds converted to a percentage. Most spreadsheet programs (such as Lotus 123 and Microsoft Excel) have built-in formulas to compute BEY. Also called coupon equivalent rate or equivalent bond yield.
In financial terms, the bond equivalent yield (BEY) is a metric that lets investors calculate the annual percentage yield for fixed-come securities, even if they are discounted short-term plays that only pay out on a monthly, quarterly, or semi-annual basis.
How to use Bond equivalent yield (BEY) in a sentence?
- Discounted (zero-coupon) bonds have shorter durations than traditional fixed income securities, which makes it impossible to calculate their annual yields.
- The bond equivalent yield (BEY) formula can help approximate what a discounted bond would pay annually, letting investors compare their returns with those of traditional bonds.
- Fixed income securities come in different forms.
Meaning of Bond equivalent yield (BEY) & Bond equivalent yield (BEY) Definition