Friday 28th October 2016                 Change text size:

Investment term of the day: effective yield

dictionary By doctor-a via stock.xchng

The effective yield is a calculation for bonds that assumes you reinvest the coupon once you have received payments. Effective yield takes into account the power of compounding on investment returns, whilst nominal yield does not.

For example a fixed-income investment that pays 3% interest each month has a higher effective yield because the compounding interest results in a higher return each month.

Investopedia definition

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