Bond Equivalent Yield Calculator (+ Formula)

Face Value (FV):



Price (P):



Days to Maturity (d):



Calculate

Bond Equivalent Yield (BEY):

The Bond Equivalent Yield (BEY) Calculator helps investors evaluate the annualized yield on short-term investments or bonds. This metric is especially useful for comparing bonds with different maturity periods, enabling you to estimate the annualized return on your bond investment.

Formula

The formula for calculating Bond Equivalent Yield (BEY) is:

BEY = [(Face Value – Price) / Price] * (365 / Days to Maturity)

Where:

• FV = Face Value of the bond
• P = Price you paid for the bond
• d = Days to Maturity

How to Use

1. Enter the bond’s Face Value (FV), which is the amount you’ll receive when the bond matures.
2. Input the Price (P), which is the amount you paid for the bond.
3. Enter the number of Days to Maturity (d) of the bond.
4. Click the “Calculate” button to determine the Bond Equivalent Yield (BEY), expressed as a percentage.

Example

Let’s assume you bought a bond with a face value of $1,000, a price of $950, and it matures in 180 days. By entering these values into the calculator, the BEY will be calculated as 10.53%.

FAQs

1. What is Bond Equivalent Yield (BEY)?
   BEY is a way to express the annualized yield of a bond that has less than a year to maturity.
2. Why is BEY important?
   It allows investors to compare the yield of short-term bonds with different maturities on an equivalent annualized basis.
3. How is BEY different from coupon yield?
   Coupon yield refers to the fixed annual interest rate paid by the bond, while BEY annualizes the bond’s discount or premium over its purchase price.
4. What factors affect the BEY?
   The price paid for the bond, the face value, and the number of days until maturity directly affect the BEY.
5. Can BEY be negative?
   BEY can be negative if the bond’s purchase price exceeds its face value, which implies a loss rather than a gain.
6. Is BEY useful for bonds with more than one year to maturity?
   No, BEY is typically used for short-term bonds, often with less than a year to maturity.
7. How does BEY compare with YTM (Yield to Maturity)?
   BEY is an annualized version of the bond’s return, while YTM takes into account the total return over the bond’s entire life, considering reinvestment.
8. What is the purpose of using 365 in the formula?
   The number 365 accounts for the number of days in a year, annualizing the return of the bond for comparison purposes.
9. Can BEY be used for zero-coupon bonds?
   Yes, BEY can be used for zero-coupon bonds, which don’t pay periodic interest, as it focuses on the price and maturity.
10. What is the difference between BEY and current yield?
    Current yield is based on the coupon payment and current price, while BEY is based on the bond’s price, face value, and time to maturity.
11. Does BEY account for reinvestment risk?
    No, BEY doesn’t consider reinvestment risk. It only accounts for the bond’s price and maturity.
12. Why is BEY important for short-term traders?
    Short-term traders use BEY to compare the returns of bonds with various maturities on an annualized basis, helping them make more informed investment decisions.
13. Is BEY useful for corporate bonds?
    Yes, BEY can be used for any bond, including corporate, treasury, or municipal bonds.
14. How does inflation affect BEY?
    Inflation can erode the real return of the bond, reducing the purchasing power of the bond’s yield.
15. Does BEY consider taxes?
    No, BEY is a pre-tax yield. You would need to adjust it based on your tax obligations for a more accurate post-tax return.
16. Can I calculate BEY for any currency?
    Yes, the formula works regardless of the currency, as long as you’re consistent in the units used.
17. Why do investors prefer bonds with a higher BEY?
    A higher BEY indicates a higher potential annualized return, making the bond more attractive to investors.
18. What happens if the days to maturity are very few?
    If there are very few days left to maturity, the BEY may be significantly high due to the short period.
19. What is the limitation of BEY?
    BEY doesn’t account for any potential default risk or reinvestment risk, and it is only useful for comparing short-term bonds.
20. Can I compare BEY with dividend yield?
    While BEY and dividend yield are different, you can compare them if you’re deciding between bonds and dividend-paying stocks.

Conclusion

The Bond Equivalent Yield Calculator provides a clear and efficient way to calculate the annualized yield of a short-term bond investment. By using key inputs like the face value, purchase price, and days to maturity, investors can determine how well a bond performs in terms of its annual return. This tool is essential for making informed investment decisions in the bond market.