Effective Yield
Definition
What is Effective Yield?
The actual annualised returnA return converted into an equivalent yearly rate to make periods easier to compare. relative to the amount invested, allowing for the stated compoundingThe process by which returns earn additional returns over time. convention.
Example in practice
How This Looks in Practice
A bill's effective yield exceeds its discount rateThe rate used to convert future cash flows into present value. because the return is measured against the lower purchase price.
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