 # YIELD

In this comprehensive guide, we will explore the YIELD function in Excel, which is used to calculate the yield of a security that pays periodic interest. This function is particularly useful for investors and financial analysts who need to determine the yield on bonds or other fixed-income investments. We will cover the syntax, examples, tips and tricks, common mistakes, troubleshooting, and related formulae for the YIELD function.

## YIELD Syntax

The YIELD function in Excel has the following syntax:

YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis])

Where:

• settlement is the date when the security is purchased or settled.
• maturity is the date when the security expires or matures.
• rate is the annual interest rate of the security.
• pr is the security’s price per \$100 face value.
• redemption is the security’s redemption value per \$100 face value.
• frequency is the number of interest payments per year (1 for annual, 2 for semi-annual, and 4 for quarterly).
• [basis] (optional) is the day count basis to be used (0 for 30/360, 1 for actual/actual, 2 for actual/360, 3 for actual/365, and 4 for European 30/360). If omitted, the default is 0.

## YIELD Examples

Let’s look at some examples of how to use the YIELD function in Excel:

Example 1: Calculate the yield of a bond with an annual interest rate of 5%, a purchase price of \$95, a redemption value of \$100, a settlement date of January 1, 2020, a maturity date of January 1, 2025, and semi-annual interest payments.

=YIELD(“1/1/2020”, “1/1/2025”, 0.05, 95, 100, 2)

This formula will return the yield of the bond, which is approximately 0.057 or 5.7%.

Example 2: Calculate the yield of a bond with an annual interest rate of 4%, a purchase price of \$102, a redemption value of \$100, a settlement date of June 1, 2020, a maturity date of June 1, 2030, and quarterly interest payments using the actual/actual day count basis.

=YIELD(“6/1/2020”, “6/1/2030”, 0.04, 102, 100, 4, 1)

This formula will return the yield of the bond, which is approximately 0.036 or 3.6%.

## YIELD Tips & Tricks

Here are some tips and tricks to help you effectively use the YIELD function in Excel:

• Ensure that the settlement and maturity dates are entered as valid Excel dates. You can use the DATE function to create a date value.
• Remember that the rate, pr, and redemption values should be expressed as decimals (e.g., 5% should be entered as 0.05).
• When comparing yields of different bonds, make sure to use the same day count basis for consistency.
• Use the YIELD function in conjunction with other financial functions, such as PRICE, DURATION, and MDURATION, to analyze the performance of fixed-income investments.

## Common Mistakes When Using YIELD

Here are some common mistakes to avoid when using the YIELD function in Excel:

• Entering the rate, pr, and redemption values as percentages instead of decimals.
• Using an incorrect day count basis, which can lead to inaccurate yield calculations.
• Not using valid Excel dates for the settlement and maturity dates.
• Forgetting to adjust the frequency value based on the number of interest payments per year.

## Why Isn’t My YIELD Function Working?

If your YIELD function is not working, consider the following troubleshooting steps:

• Check for any errors in the input values, such as incorrect dates, rates, or day count basis.
• Ensure that the settlement date is before the maturity date.
• Verify that the frequency value is set correctly based on the number of interest payments per year.
• Make sure that the rate, pr, and redemption values are entered as decimals, not percentages.

## YIELD: Related Formulae

Here are some related formulae that can be used in conjunction with the YIELD function to analyze fixed-income investments:

• PRICE: Calculates the price of a security that pays periodic interest.
• DURATION: Calculates the Macaulay duration of a security that pays periodic interest.
• MDURATION: Calculates the modified duration of a security that pays periodic interest.
• YIELD.DISC: Calculates the yield of a discounted security, such as a Treasury bill.
• YIELD.MAT: Calculates the yield of a security that pays interest at maturity, such as a zero-coupon bond.

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