A Bond Equivalent Yield Calculator

By Stock Research Pro • December 28th, 2008

The Bond Equivalent Yield (BEY) is a formula for describing the yield on a bond while taking into consideration multiple factors regarding the interest on the bond. The BEY enables the comparison of fixed-income securities whose payments are not annual against securities with annual yields. The bond equivalent yield is the yield that is quoted in newspapers.

In calculating the BEY, the purchase price per thousand shares is divided into the purchase price. That figure is multiplied by the number of days until maturity divided by the number of days in the period under consideration. The time period can be monthly, quarterly, semi-annually, or annually.

About Bond Investing

With bond investing, an investor is essentially lending money to a corporation or a government entity for a fixed period. For the investor, the attraction of is that most bonds pay a fixed interest payment, making them both reliable and income-generating. Bonds are assigned ratings from AAA to D (where D is a bond that is in default) by independent credit rating agencies. Buying bonds that are rated below investment grade (lower than BBB) is considered bond speculating as opposed to bond investing.

A Long-Term Investment Strategy

Bond investing is really very simple. After you purchase the bond you cannot get your money back until the bond reaches maturity. For this reason, bond investing is a long-term investment strategy. There are, however, several different time lengths to choose from. The bonds with shorter timeframes will mature after one year (although you would typically not earn very much from these shorter timeframe instruments).

Diversification in Bond Investing

When considering bond investing it is important to consider diversification. Most experts agree that, as a general rule, it’s not a good idea to hold all of your assets in a single asset class or investment. Through diversification, you can minimize the risks within your bond investments by creating a portfolio of bonds with varying characteristics. Investing in different types of bonds from different issuers can protect you from the possibility that any single issuer will default on its obligations for payment.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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