# Calculate the Coupon Equivalent Rate

*Coupon Equivalent Rate* (CER) is a measure of yield that enables comparison of securities quoted on a discount basis to those quoted on the more typical return on principal invested. Measuring interest at the coupon equivalent rate is practical for Treasury Bills, commercial paper and other securities that are sold for less than face value. The coupon equivalent rate is calculated based on the actual initial investment and arrives at yield accordingly.

#### What are Zero-Coupon Bonds?

Zero-coupon bonds or “zeros” are bonds that are sold to investors at a discount to face value. At the bond’s maturity, the face value is paid along with any compounded interest.

While some zero-coupon bonds are issued this way, others have been repackaged as zero-coupon bonds after the issuing institution has stripped the coupons. Zero-coupon bonds typically see greater price fluctuations than coupon bonds due to their holding payment until maturity.

As part of an investment strategy, if you have no requirements for the current income offered by coupon bonds, and you believe interest rates to be fairly high at the time of investment, a zero-coupon bond might be a good idea.

#### Calculate the Coupon Equivalent Rate

The formula for the coupon equivalent rate can be written as:

##### CER = ((Current Price – Face Value) / Current Price) x (360 / Days Until Maturity)

Please note that it is common to use 365 instead of 360 to represent days in the year.

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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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