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When you're offered the opportunity to invest in a discounted security, you might know everything about the investment except for its annual yield. If so, you can find that yield by using the YIELDDISC function. To use that function and to find the annual yield of an investment, you need to know the following five things. The first is the settlement date that is the date do you take possession of the investment. Next is the maturity date and that is the date that the investment comes to an end. Next is the price and that is the amount that you pay per $100 of face value for the bond.
Next is the redemption value. That's almost always going to be $100, but it doesn't have to be. Then next you have the basis and basis refers to the way that you count days in the month and a year. Basis 0, which is what we're using here, is the North American standard and it says that every month has 30 days and therefore there are 360 days in the year. If we were change to basis number 1, then we would have actual days. So that would be 365 days in a non-leap year, 366 in a leap year, and then either 28 or 29 days in February, respectively.
So with that information in mind, we can calculate the annual yield of this security. So click in cell C10, type an equal sign and then type yielddisc and a left parentheses so we can start entering in the cell references for the arguments. First is settlement date that's in C3 comma. Maturity date is C4, comma. The price and again that's price for $100 of face value is in C5, comma.
Redemption value C6 and the basis C7, then a right parentheses. It looks like everything is in order in the formula, all the references are good, so I'll press Tab and see that the annual yield of this investment is 6.35%. Finding a discount security's yield lets you compare it to other potential investments, which helps you make sound decisions.
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