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Talk:30-day yield

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Explain the financial sense[edit]

Can anyone explain the financial sense behind the 30 day yield calculation. Specifically, why the one part of the formula is raised to the 6th power and also why we are multiplying by 2 at the end.

The formula is an estimate of an annual yield, based on the earnings of the last 30 day period. The part of the formula in parentheses (the part that's raised to the 6th power) is the calculation of the 30 day earnings. By raising the 30-day earnings to the 6th power the rate is compounded for 6 months. This assumes that the investment will yield the same earnings each of the next 6 months as it did in the base period. Multiplying the result by 2 at the end provides an annual (12 month) estimate of the earnings. Since the rate is not compounded for 12 months, the estimate is conservative and assumes that the investment will not continue to earn at the same rate for the entire year. For example, an investment that earned 1% in the 30 day base period, using the formula, would have a 30-day yield of 2*[(1.01^6)-1] or 12.304%. On the other hand, if the same investment earned the same rate every month for a year the annual earnings would be (1.01^12)-1 or 12.682%.

Jalord6029 (talk) 13:05, 23 February 2013 (UTC)[reply]

The calculation section says this is a yield to maturity, yet the time to maturity doesn't appear anywhere in the formula. Pm2 (talk) 06:01, 11 May 2013 (UTC)[reply]