Bond Equivalent Yield (BEY) Calculator

Bond Equivalent Yield (BEY)

The Bond Equivalent Yield standardizes yields so that investors can compare discount securities (like Treasury bills) with coupon-bearing bonds on a fair, apples-to-apples basis. Without this conversion, comparing a T-bill’s discount yield to a bond’s coupon yield is misleading.

Two common BEY calculations:

1. From a discount security (T-bill, commercial paper):

BEY = [(Face - Price) / Price] × (365 / Days to Maturity)

This converts the purchase discount into an annualized rate using a 365-day year.

2. From a semi-annual yield (bond convention):

BEY = 2 × Semi-annual Yield

Most US bonds pay coupons semi-annually. BEY simply doubles the semi-annual rate to express it as an annual figure — this is the standard bond market convention.

Why the conversion matters:

T-bills are quoted on a bank discount basis:

Discount Yield = [(Face - Price) / Face] × (360 / Days)

This is misleading because:

• It uses face value (not price paid) in the denominator
• It uses a 360-day year instead of 365

BEY corrects both distortions, making T-bill yields comparable to coupon bond yields.

Example:

• 90-day T-bill, face value $10,000, price $9,850
• Discount yield = ($150 / $10,000) × (360/90) = 6.00%
• BEY = ($150 / $9,850) × (365/90) = 6.19%

The T-bill actually yields 6.19% on a bond-equivalent basis — not 6.00%.

When to use BEY:

• Comparing T-bill returns to short-term bonds or CDs
• Evaluating money market instruments
• Translating any semi-annual bond yield into an annual rate