The Bond Equivalent yield (BEY) is a statistic that enables investors to determine the yearly percentage yield for fixed-come assets, even if they are discounted short-term investments that only pay out on a monthly, quarterly, or semi-annual basis. For example, an investor may purchase a three-month CD paying 1.5% interest per month. To calculate the BEY on this investment over the course of one year, one would multiply 1.5% by 12 (the number of months in a year), which equals 18%. This means that the investor's annualized return for this three-month CD would be 18%.Investors may contrast the performance of these assets with that of conventional fixed income instruments, which have maturities of one year or more and provide yearly yields. For instance, an investor might compare the BEY on their three-month CD to the 5% yield offered by a one-year certificate of deposit (CD). By having BEY numbers at their fingertips, investors are better equipped to make decisions when building their entire fixed income portfolios - whether they choose shorter duration investments with higher yields or longer duration investments with lower yields but less risk.
