Master the YIELDDISC Formula: Calculate Annual Yield for Discounted Securities
=YIELDDISC(settlement, maturity, pr, redemption, [basis])The YIELDDISC function is a powerful financial tool in Excel designed to calculate the annual yield of a security sold at a discount to its redemption value. This formula is essential for financial analysts, investment professionals, and treasury managers who need to evaluate the return on discounted debt instruments such as Treasury bills, commercial paper, and other short-term securities. Understanding how to properly implement YIELDDISC enables you to make informed investment decisions and accurately compare the performance of various discounted securities in your portfolio. The YIELDDISC formula operates on the principle that discounted securities are purchased below their face value, with the investor receiving the full redemption amount at maturity. By analyzing the relationship between the purchase price, redemption value, and time to maturity, this formula reveals the annualized percentage return on your investment. This metric is crucial for portfolio management, as it allows you to benchmark discounted securities against other investment opportunities and assess whether they meet your required rate of return.
Syntax & Parameters
The YIELDDISC formula follows the syntax: =YIELDDISC(settlement, maturity, pr, redemption, [basis]). Each parameter serves a specific purpose in calculating the annual yield. The settlement parameter represents the date when the security is purchased or transferred, typically the trade date or the date the investment is acquired. The maturity parameter specifies the date when the security reaches its end of life and the redemption value is paid to the investor. The pr parameter is the current market price of the security, expressed as a percentage of the redemption value or as an absolute dollar amount, depending on your data structure. The redemption parameter indicates the value you will receive at maturity, usually the face value or par value of the security. Finally, the optional basis parameter determines the day-count convention used in calculations, with 0 representing the US 30/360 method (default), 1 for actual/actual, 2 for actual/360, 3 for actual/365, and 4 for European 30/360. Understanding each parameter's role ensures accurate yield calculations and prevents common formula errors.
settlementmaturityprredemptionbasisPractical Examples
Treasury Bill Yield Calculation
=YIELDDISC("2024-01-15", "2024-07-14", 98500, 100000, 0)This formula calculates the annualized yield by comparing the discount ($1,500) to the investment amount and time period. The settlement date is January 15, 2024, maturity is July 14, 2024 (approximately 180 days), the purchase price is $98,500, redemption value is $100,000, and the basis uses the US 30/360 day-count method.
Commercial Paper Evaluation
=YIELDDISC("2024-03-01", "2024-05-30", 97200, 100000, 1)This example uses basis 1 (actual/actual), which provides more precision for shorter-term instruments. The three-month investment period and $2,800 discount generate a competitive yield that helps the corporation compare this paper against other short-term funding alternatives.
Municipal Bond Discount Analysis
=YIELDDISC("2024-06-01", "2025-06-01", 95000, 100000, 2)Municipal bonds often use the actual/360 basis for yield calculations. This one-year investment with a $5,000 discount demonstrates how YIELDDISC helps evaluate tax-advantaged securities within a diversified portfolio.
Key Takeaways
- YIELDDISC calculates the annual yield for discount securities by analyzing the relationship between purchase price, redemption value, and time to maturity
- The optional basis parameter determines day-count conventions; using the correct basis ensures your yields align with market standards and enable accurate comparisons
- Always verify that settlement dates precede maturity dates and that prices are numeric values; these are the most common sources of YIELDDISC errors
- YIELDDISC works specifically for zero-coupon or discount instruments; use YIELD for coupon-bearing bonds and other instruments with periodic payments
- Combine YIELDDISC with other functions like IF, SUMPRODUCT, and conditional formatting to build sophisticated portfolio analysis and investment decision tools
Pro Tips
Always verify your settlement and maturity dates are in the correct chronological order before entering the formula. Excel won't automatically sort them, and reversed dates will produce #NUM! errors rather than warning you of the problem.
Impact : Prevents silent calculation errors and ensures your yield analysis reflects actual investment periods, avoiding misleading results that could impact portfolio decisions
Use consistent date formatting across your spreadsheet and ensure Excel recognizes dates as date values, not text. Dates entered as text (like "01/15/2024") may cause unexpected calculation results or errors.
Impact : Eliminates date-related calculation errors and ensures YIELDDISC processes dates correctly, providing accurate yield calculations for financial analysis and reporting
Create a reference table documenting which basis convention applies to each security type in your portfolio (Treasury bills use 0, municipal bonds often use 2, etc.). This prevents applying incorrect day-count conventions across different security categories.
Impact : Ensures yield calculations align with market conventions and enables accurate comparisons with published benchmarks and market data, critical for performance attribution and investment decisions
Build in data validation rules that flag when price exceeds redemption value, as this indicates non-discount securities that shouldn't use YIELDDISC. Use conditional formatting to highlight these anomalies automatically.
Impact : Prevents accidental misuse of YIELDDISC on inappropriate security types and maintains data quality, reducing analytical errors and improving portfolio management efficiency
Useful Combinations
Compare Multiple Securities with Conditional Formatting
=IF(YIELDDISC(settlement, maturity, pr, redemption, basis) > 0.05, "BUY", "HOLD")Combine YIELDDISC with IF statements to automatically flag securities exceeding a target yield threshold. This creates a decision matrix for portfolio managers evaluating multiple discount instruments simultaneously, enabling quick identification of attractive investment opportunities.
Calculate Portfolio Weighted Average Yield
=SUMPRODUCT(YIELDDISC(settlement_range, maturity_range, pr_range, redemption_range, basis_range), weights_range) / SUM(weights_range)Use YIELDDISC within SUMPRODUCT to calculate the weighted average yield across a portfolio of discounted securities. This combination provides a single metric representing overall portfolio performance and helps compare the portfolio against benchmarks or required return rates.
Identify Yield Spread Between Securities
=YIELDDISC(settlement1, maturity1, pr1, redemption1, basis1) - YIELDDISC(settlement2, maturity2, pr2, redemption2, basis2)Calculate the yield spread between two discounted securities by subtracting one YIELDDISC result from another. This analysis helps identify relative value opportunities and assess risk-adjusted returns, particularly useful for comparing government securities with corporate paper or comparing securities across different time horizons.
Common Errors
Cause: The settlement date is equal to or after the maturity date, creating a negative or zero time period. This violates the mathematical requirements of the yield calculation.
Solution: Verify that the settlement date is earlier than the maturity date. Check your date entries for typos or reversed date values. Use the TODAY() function if referencing current dates to ensure proper chronological order.
Cause: The price (pr) or redemption parameters contain non-numeric values, text strings, or improperly formatted numbers. This prevents Excel from performing the mathematical calculations required for yield determination.
Solution: Ensure all price and redemption values are entered as numbers without currency symbols or commas. Convert text-formatted numbers using the VALUE() function. Check that cells referenced in the formula contain valid numeric data, not formulas that return errors.
Cause: The formula references cells that have been deleted, moved, or are located on a closed workbook. This breaks the connection between the formula and its required data sources.
Solution: Verify that all referenced cells exist and contain the correct data. Use absolute references ($A$1) for important data ranges to prevent accidental shifts. Check that any workbooks referenced in the formula are open and accessible.
Troubleshooting Checklist
- 1.Verify settlement date is earlier than maturity date; check for reversed or transposed date values
- 2.Confirm all price and redemption values are numeric, not text; remove currency symbols and commas if present
- 3.Validate that basis parameter is between 0 and 4; check that the basis matches your security's market convention
- 4.Ensure price is less than redemption value for true discount securities; negative yields indicate premium-priced securities
- 5.Check that referenced cells contain valid data and haven't been deleted or moved; verify workbook references are accessible
- 6.Confirm date cells are formatted as dates in Excel, not text; use DATE() function or date picker to ensure proper recognition
Edge Cases
Settlement and maturity dates are very close (e.g., 1-2 days apart)
Behavior: YIELDDISC returns extremely high yields because the annualization factor magnifies small discounts over very short periods. While mathematically correct, these results may seem unrealistic.
Solution: This is correct behavior for very short-term instruments. Verify the dates are intentional; if they represent an error, correct them. For extremely short periods, consider whether the security should be evaluated differently.
Common with overnight or very short-term money market instruments
Price and redemption values are identical
Behavior: YIELDDISC returns 0% yield because there is no discount. The investor receives no return on the investment.
Solution: This scenario indicates the security is not a discount instrument. Verify data accuracy. If intentional, the security offers no yield component and should be evaluated for other characteristics.
Unusual in practice; typically indicates data entry error or misclassification of security type
Using basis parameter value outside the 0-4 range
Behavior: YIELDDISC returns #NUM! error because the basis parameter is invalid and Excel cannot determine which day-count convention to apply.
Solution: Correct the basis value to one of the five valid options (0, 1, 2, 3, or 4). Verify which day-count convention your security uses by checking financial documentation or market standards.
Common mistake when basis values are entered as text or contain typos
Limitations
- •YIELDDISC cannot handle securities with multiple redemption dates or variable redemption values; it assumes a single redemption amount at a specific maturity date, limiting applicability to complex structured products
- •The formula does not account for accrued interest, transaction costs, taxes, or other real-world investment expenses that affect actual returns; results represent theoretical yields before these considerations
- •YIELDDISC requires exact settlement and maturity dates; it cannot accommodate rolling or variable maturity schedules common in some derivative or structured finance instruments
- •The formula assumes the investor holds the security to maturity; it does not calculate yields for early sale or reflect market price fluctuations between settlement and maturity dates
Alternatives
PRICEDISC calculates the price of a discounted security given the yield, working in the opposite direction of YIELDDISC. Use this when you know the desired yield and need to determine the fair purchase price.
When: Investment pricing and valuation when comparing securities with different yields to identify undervalued opportunities
DISC calculates the discount rate directly rather than the annual yield. This simpler function focuses on the percentage discount without annualizing, useful for quick comparisons of discount amounts.
When: Quick assessment of discount percentages for short-term instruments or preliminary screening of securities
Creating custom formulas using (Redemption - Price) / Price * (365 / Days) provides transparency and allows customization for specific financial scenarios or non-standard day-count conventions.
When: Complex financial modeling where standard functions don't accommodate unique requirements or when you need to integrate calculations into larger analytical frameworks
Compatibility
✓ Excel
Since 2007
=YIELDDISC(settlement, maturity, pr, redemption, [basis])✓Google Sheets
=YIELDDISC(settlement, maturity, pr, redemption, [basis])Google Sheets supports YIELDDISC with identical syntax and parameters. Date handling follows Google Sheets conventions; ensure dates are recognized as date values for accurate calculations.
✓LibreOffice
=YIELDDISC(settlement, maturity, pr, redemption, [basis])