The Bond Equivalent Yield (BEY) Calculator helps investors compare the returns of short-term securities with bonds. It converts the yield of a short-term investment into an annualized yield, making comparisons easier.
Formula
The formula for calculating BEY is:
BEY = [(FV − P) / P] × (365 / d)
Where:
- FV = Face value of the bond
- P = Purchase price
- d = Days to maturity
How to Use
- Enter the face value (FV) of the bond.
- Input the purchase price (P) of the bond.
- Enter the days to maturity (d).
- Click the “Calculate” button to get the BEY.
Example
Suppose a bond has:
- Face Value (FV) = $1,000
- Purchase Price (P) = $950
- Days to Maturity (d) = 180
Using the formula:
BEY = [(1000 – 950) / 950] × (365 / 180) ≈ 10.70%
FAQs
- What is Bond Equivalent Yield (BEY)?
BEY is a measure used to compare the yields of short-term securities with annualized bond yields. - Why is BEY important?
It standardizes yield calculations, allowing investors to compare bonds with different maturities. - Can BEY be negative?
No, BEY is always positive as it represents a yield. - What is the difference between BEY and Yield to Maturity (YTM)?
BEY annualizes the return, while YTM accounts for compound interest over time. - Does BEY consider compounding?
No, BEY is a simple yield measure without compounding effects. - How does BEY help investors?
It allows for an easier comparison of different fixed-income securities. - What is the typical range for BEY?
BEY varies depending on the bond type, interest rates, and market conditions. - Can BEY be used for treasury bills?
Yes, BEY is commonly used for treasury bills and other short-term securities. - How does BEY compare to Discount Yield?
BEY accounts for actual investment returns, while discount yield is based on the bond’s discount price. - What happens if days to maturity is very small?
A very small d will result in a high BEY due to the formula’s structure. - Is BEY useful for corporate bonds?
Yes, corporate bonds with short maturities can be evaluated using BEY. - Does BEY apply to municipal bonds?
Yes, municipal bonds with short durations can use BEY for comparisons. - What is the main limitation of BEY?
It does not account for reinvestment risks or compounding effects. - Can BEY be used for CDs (Certificates of Deposit)?
Yes, BEY helps compare CDs with bonds. - What is a good BEY value?
A good BEY depends on market conditions and alternative investment options. - How does BEY differ from APR?
BEY is specific to bonds, whereas APR applies to loans and credit products. - Is BEY the same as Effective Annual Yield?
No, effective yield accounts for compounding, while BEY does not. - Can BEY be used for junk bonds?
Yes, but risk factors should be considered. - How does inflation affect BEY?
Inflation can reduce the real return on a bond, making BEY less meaningful. - What if BEY is too low?
A low BEY may indicate an unattractive investment compared to alternatives.
Conclusion
The Bond Equivalent Yield Calculator simplifies the calculation of BEY, helping investors compare different bonds effectively. By understanding BEY, investors can make informed decisions about fixed-income investments.