effective yield

Definition

The total yield on a bond when interest payments are reinvested. The effective yield is always higher than the basic yield because interest from the investment is itself earning interest, an effect known as compounding.

Use effective yield in a sentence

If you are going to want to figure out how a bond has been doing you should calculate the effective yield.

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The new effective yield was finally determined because the interest payments were reinvested and everything could be determined fine now.

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Tom saw that the effective yield on his bond was going to provide him with a very steady return in the long-term and that he must be patient with his investment.

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