An alternative method of calculating the
yield on a
bond. It is used for
zero-coupon bonds, as these are
issued at
discounts to their
face value; that is, the CER states what the
coupon rate would be if it carried a coupon and had been
sold at face value. As such, it gives a more accurate picture of the yield of a zero-coupon bond. It is calculated as:
CER = ((
Market Price - Face Value) / Market Price) * (365 / Days until
Maturity).