Calculator Panel
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Enter your values above and click Calculate.
What This Calculator Does
This calculator computes the annual yield of short-term money market instruments that are sold at a discount, standardizing them to a 365-day year for easy comparison.
How to Use This Calculator
Enter the bond par value, the discounted purchase price, and remaining days to maturity. Click Calculate to derive the standardized Bond Equivalent Yield.
How the Calculation Works
The underlying math engine processes your inputs using exact formulas. This systematic approach ensures professional, institutional-grade calculation precision:
Mathematical Formula
Formula Legend:
- · Par Value is the final maturity payoff (typically $1,000).
- · Days to Maturity represents the remaining life of the security.
Practical Example
A Treasury Bill with a $10,000 face value is purchased for $9,750 with 180 days remaining until maturity:
Step-by-Step Mathematical Walkthrough:
- 1 Par Value = $10,000.
- 2 Purchase Price = $9,750.
- 3 Days to Maturity = 180.
- 4 Absolute Gain = $10,000 - $9,750 = $250.
- 5 Holding Period Return = ($250 / $9,750) * 100 = 2.564%.
- 6 Bond Equivalent Yield (BEY) = 2.564% * (365 / 180) = 5.20%.
Important Assumptions & Notes
- Compounding is not applied (standard pricing convention for BEY).
- A year is modeled with exactly 365 days.
Common Mistakes or Considerations
- Confusing BEY with the bank discount yield, which uses a 360-day year and divides by the face value instead of the purchase price.
- Applying this short-term formula to long-term compounding coupon bonds.
Frequently Asked Questions
Why is BEY calculated?
BEY standardizes the yield of short-term discount bonds so they can be compared directly with standard coupon-paying bonds that use a 365-day year.
What is a discount security?
A debt instrument (like a T-bill) that does not pay regular interest coupons. Instead, it is sold below face value and redeemed at full par at maturity.
How does BEY differ from APY?
BEY does not account for compounding interest. APY accounts for compounding, making APY slightly higher than BEY over similar periods.