Equivalent yield is a standardized way to express the return from a fixed-income security on a common basis, typically by converting its cash flows and coupon schedule into a single annual rate. This makes it easier to compare bonds with different coupon frequencies, maturities, and tax treatments. Different conventions exist, and the exact calculation depends on the instrument and quote.
Investors and analysts use equivalent yield figures to compare securities that do not share the same payment schedules or tax treatment. For example, a semiannual-coupon bond and a quarterly-coupon bond can be expressed on a common annual basis to assess which one provides a higher annualized return under current prices. It is important to confirm the basis used (such as the compounding frequency and tax assumptions) when interpreting the quote, since different definitions can yield different numbers. Yields depend on price and market conditions and are not a guarantee of future results.
If a bond quotes 3.0% per six months, the bond-equivalent yield is about 6% per year, enabling comparison with other bonds quoted on an annual basis.
Yield to Maturity (YTM) · Current Yield · Bond-Equivalent Yield (BEY) · Taxable-Equivalent Yield (TEY) · Yield to Call (YTC) · Discount Yield · Coupon Rate