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%.
