Bond Equivalent Yield Calculator
Calculate the bond equivalent yield (BEY) to compare yields of bonds with different payment frequencies on an annual basis. This standardizes yields for accurate comparison across different bond types.
Bond Yield Information
Bond Equivalent Yield
BEY:
0.00%
Stated Yield:
0.00%
Yield Difference:
0.00%
Yield Comparison
Annual Equivalent:
0.00%
Effective Annual Yield:
0.00%
Comparison Basis:
Annual Compounding
Investment Analysis
Yield Attractiveness:
N/A
Market Comparison:
N/A
Investment Decision:
N/A
Understanding Bond Equivalent Yield
Bond Equivalent Yield (BEY) standardizes bond yields to an annual compounding basis, allowing for accurate comparison of bonds with different payment frequencies. This is particularly important when comparing Treasury bills, commercial paper, and bonds with varying coupon payment schedules.
Bond Equivalent Yield Formula
BEY Calculation
- BEY = [(1 + r/f)^f] - 1
- r = Stated yield
- f = Compounding frequency per year
- Expressed as a decimal, then × 100 for percentage
Example Calculations
- Semi-annual: 5% ? BEY = [(1 + 0.05/2)^2] - 1 = 5.06%
- Quarterly: 5% ? BEY = [(1 + 0.05/4)^4] - 1 = 5.09%
- Monthly: 5% ? BEY = [(1 + 0.05/12)^12] - 1 = 5.12%
Why BEY Matters
Yield Comparison Challenges
Different compounding frequencies create comparison difficulties
Without Standardization
- 5% semi-annual ? 5% quarterly
- Misleading comparisons
- Investment decision errors
- Market inefficiencies
With BEY Standardization
- All yields on same basis
- Accurate comparisons
- Better investment decisions
- Transparent markets
Common Applications
| Security Type | Typical Frequency | BEY Importance |
|---|---|---|
| Treasury Bills | Discount basis | Critical for bond comparison |
| Commercial Paper | Discount basis | Money market yield conversion |
| Corporate Bonds | Semi-annual | Standardization for analysis |
BEY vs Other Yield Measures
BEY (Bond Equivalent Yield)
- Annual compounding basis
- Semi-annual compounding
- Standard for bond markets
- Used by Bloomberg, Reuters
EAR (Effective Annual Rate)
- Any compounding frequency
- Shows true annual return
- More comprehensive
- Used for loan comparisons
Practical Examples
Treasury Bill Comparison
- T-bill discount yield: 4.8%
- BEY calculation needed
- Compare with bond yields
- Investment decision making
Money Market Yields
- CD yields: Quoted annually
- T-bill yields: Discount basis
- BEY standardizes comparison
- Portfolio allocation decisions
Market Conventions
US Treasury Market
- T-bills: Discount yield
- T-notes/T-bonds: Semi-annual yields
- BEY for cross-market comparison
- Federal Reserve communications
Corporate Bond Market
- Semi-annual compounding standard
- BEY for yield curve analysis
- Credit spread calculations
- Relative value assessment
BEY Limitations
Assumptions
- Annual compounding basis
- Regular payment intervals
- No early redemption
- Constant yield throughout period
Practical Issues
- Not applicable to zero-coupon bonds
- Complex for irregular payments
- Day count conventions vary
- Settlement date adjustments
Key Takeaways for Bond Equivalent Yield Calculator
- BEY = [(1 + r/f)^f] - 1 standardizes yields to annual compounding for accurate comparison
- Semi-annual compounding is standard for bonds, so BEY adjusts for this convention
- BEY is essential for comparing Treasury bills (discount yields) with bonds (coupon yields)
- Higher compounding frequency results in higher BEY for the same stated yield
- BEY allows fair comparison across different fixed income securities and markets
- The calculator helps investors make informed decisions by standardizing yield comparisons
- BEY is widely used in financial markets and quoted by major data providers
- Use BEY when evaluating money market instruments versus longer-term bonds