effective annual yield
Definition
The yield after taking into account the consequences of compounding. It is computed as [1 + (stated interest/n)]n - 1; where n is the number of payments within the year. For instance, a bond's return is 5% and is to be paid semi-annually, thus, the effective annual yield is calculated as: [1 + (.05/2)2 - 1 = 5.062%.
Use this term in a sentence
“ You should try to make sure that you know what a good effective annual yield will be and strive to always reach it. ”
“ The effective annual yield was used to best take into consideration the time that would transpire from the beginning until the end of the project. ”
“ Some newer investors do not take the Effective Annual Yield into consideration. Some bonds pay monthly returns, which effectively lower the actual yield of the bond. ”
