Bond Equivalent Yield

The Bond Equivalent Yield (BEY) equation is used to determine the annual yield on a discount, or zero coupon, bond.

EXAMPLE:

Ms. Juliet invests  $3000 in a bond to be repaid in 6 months  with $3200. This means that she will make an additional $200 i.e. $3200 - $3000.  The percentage return on her investment can be found by dividing the return by the original price which therefore becomes 6.667% in those 6 months. This resolves the  first part of the bond equivalent formula which shows the return on investment as a percentage. The second part of the BEY formula determines the annual rate of the first portion of the formula. Multiplying by approximately 2 would help determine the annual yield which in this case will be 13.33% .