This article was coauthored by Kendra Kinnison, CPA, MBA. Kendra Kinnison is a Certified Public Accountant in Texas. She received her BBA in Accounting and Masters of Business Management (MBA) from Texas A&M UniversityCorpus Christi in 1999 and 2000. She is the youngest MBA graduate in the schoolâ€™s history.
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Bond equivalent yield (or BEY) is a tool for determining the annual yield on a discount bond or note. For bonds that do not have an annual yield clearly stated, investors can convert the stated yield into an annual yield by using the bond equivalent yield calculation. BEY is useful in comparing different bonds for the purpose of analysis and investing, as it allows the analyst to make useful comparisons between bonds with annual payments and those with more frequent payments (such as quarterly or monthly).^{[1] X Research source }
Steps
Part 1
Part 1 of 3:Gathering Information

1Decide to use bond equivalent yield. The BEY calculation is used to compare fixedincome securities (bonds and notes) with other fixedincome securities in a relative way, regardless of how frequently they make payments. To calculate BEY, you will need the price of the bond, the par value (face value), and the number of days to maturity.
 For example, the BEY would be useful if you wanted to compare returns on two bonds, perhaps a six month bond and a twelve month bond with otherwise similar terms. Obviously, the overall return on the six month bond would usually be lower than the other bond. However, the BYE calculation allows you to calculate the annual yield for both bonds and compare them on a relative basis.
 You can also consider using an annual percentage rate (APR) calculation. The APR is commonly used in evaluating consumer debt. This valuation can also be useful for investors and others who want to calculate bond yield. The annual percentage rate is simply the interest rate expressed in annual terms and can be complementary to a BEY calculation.
 The APR calculation can be used if the yield to maturity is known.^{[2] X Research source }

2Note the par value, or face value, of the bond. This is the amount that will be paid to the bond holder at maturity. Bonds often have a par value of $1,000 or, more rarely, $100. Bonds sold at a discount, like those being calculated here, are sold at a lower price than the par value. For example, a $1,000 bond might sell for $975.
 The par value is clearly stated in the bond offering.
 Par value is also used to calculate coupon payments (interest payouts) in couponpaying bonds.^{[3] X Research source }
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3Determine the price of the bond. The price of the bond is the price that the bondholder pays to acquire the bond in the market. Again, for discount bonds this number is lower than the par value of the bond. If you already own the bond, you should use your purchase price, which should be in your records. If not, you should use the current stated market price.^{[4] X Research source }

4Calculate the days to maturity. Start by finding the maturity date, which should be listed in the bond offering. This date represents the day when the par value of the bond is paid out to the bondholder. To find days to maturity, calculate the actual number of days from today until that date.^{[5] X Research source }Advertisement
Part 2
Part 2 of 3:Calculating Bond Equivalent Yield

1Learn the bond equivalent yield equation. The equation for BEY is essentially two calculations that are multiplied together. One side gives the return on investment and the other converts that return into an annualized yield. The equation is as follows: In the equation, the variables stand for the following:
 BEY is the bond equivalent yield.
 FV is the face value (also called the par value).
 P is the purchase price of the bond.
 d is the days to maturity.^{[6] X Research source }

2Input your variables. Place your values for the bond you are calculating BEY for into the equation. Double check it to make sure everything is in the right place; it's easy to mix up par value and purchase price when inputting these figures.
 For example, imagine you are calculating BEY for a bond with a $1,000 face value, $980 purchase price, and 90 days until maturity. Your completed equation would look like this:

3Solve the right side of the equation. Subtract the top part of the right side first. Then, divide the result by the bottom value to solve the right side of the equation.
 The example equation would look like this after the first calculation:
 And then after the second:
 Note that this result, 0.0204, is a rounded figure. If you do not round this number, your final result may be different.

4Divide the right side of the equation. Simply divide 365 by the days to maturity to solve the right side of the equation.
 The example equation solves like this:
 This result, 4.056 is also rounded.
 The example equation solves like this:

5Multiply the two sides together. Solve for BEY by multiplying the results of your previous calculations together. In the example, this would give .
 This result has also been rounded.
 The BEY is usually expressed as a percentage. To convert it, multiply your answer by 100. So, the example would be 0.827*100, or 8.27%.^{[7] X Research source }
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Part 3
Part 3 of 3:Using Bond Equivalent Yield

1Compare various bonds using the bond equivalent yield. With the BEY in hand, you can compare semiannual, quarterly, monthly or other bonds to annual government bonds or other stable debt instruments.^{[8] X Research source } Comparing your bond to other bonds is also simple with BEY because newspapers quote yields in BEY terms.^{[9] X Research source }

2Learn about the use of BEY with shorterterm debt instruments. For example, a moneymarket product generally has a much shorter maturity time than the average bond. Finance pros use more complicated BEY calculations to compare a longterm bond in its last several months before maturity or to compare a moneymarket product to something else like a longterm government bond.Advertisement
Expert Q&A
Tips
 You can also calculate bond yields quickly using an online calculator. Try searching for them using a search engine.^{[10] X Research source }Thanks!
References
 â†‘ http://www.investopedia.com/terms/b/bey.asp
 â†‘ http://www.investopedia.com/terms/b/bey.asp
 â†‘ http://www.investopedia.com/terms/p/parvalue.asp
 â†‘ http://finance.zacks.com/computebondequivalentyieldeffectiveannualrate6069.html
 â†‘ http://finance.zacks.com/computebondequivalentyieldeffectiveannualrate6069.html
 â†‘ http://www.financeformulas.net/Bond_Equivalent_Yield.html
 â†‘ http://www.investinganswers.com/financialdictionary/bonds/bondequivalentyieldbey729
 â†‘ http://www.investinganswers.com/financialdictionary/bonds/bondequivalentyieldbey729
 â†‘ http://www.investopedia.com/terms/b/bey.asp