The effective yield is the yield of a bond, assuming that you reinvest the coupon (interest payments) once you have received payment. Reinvesting the coupon will produce a higher yield because interest is earned on the interest payments. The calculation assumes the investor can reinvest their coupon payments at the coupon rate. For bonds, effective yield is an annual rate of return associated with a periodic interest rate. The formula for effective yield is: (1 + i / n)^ n – 1 i = periodic interest rate n = the number of payment periods in one year« Back to Glossary Index
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