# coupon-equivalent rate

## Coupon Equivalent Rate

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).

## coupon-equivalent rate

An alternative measure of yield that is used to make securities usually quoted on a discount basis comparable with those quoted on the more usual return on the amount invested. Stating interest at the coupon-equivalent rate is useful for securities, such as Treasury bills and commercial paper, sold at discounts from face value. As an example, a \$10,000, 91-day Treasury bill selling for \$9,750 is usually quoted at (\$10,000 - \$9,750/\$10,000 ) × ( 360 days/91 days ) = 9.89 % However, the coupon-equivalent rate calculated on the amount of money invested is (\$10,000 - \$9,750/\$9,750 ) × ( 360 days/91 days ) = 10.14 % See also bank-discount basis.
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