Effective Yield

Also known as Annual Percentage Yield, it refers to the “yield” (investment income return) received when a bond has coupons reinvested (after all payments have been disbursed to the bondholder).

What makes it “effective” rather than nominal is that it takes continued compounding on investment returns into account, and is formulated as such: [1 + (i/n)]n – 1, with (i) being the nominal interest rate and (n) the number of payments in one year.