Understanding key financial metrics like the 7-Day Yield is essential in investment, particularly for money market funds. Our 7-Day Yield Calculator offers a simple and effective way to calculate this crucial metric, aiding investors in their financial assessments.
What is the 7-Day Yield?
The 7-Day Yield is a crucial financial metric, predominantly used to analyze money market funds. It estimates the annualized return an investor can expect from an investment based on its performance over a seven-day period. Contrary to the name, the 7-Day Yield is not about the actual earnings over a week. Instead, it’s an annualized projection, assuming the rate of return observed over the seven days continues consistently for an entire year.
The 7-Day Yield serves as a barometer of short-term performance, offering insights into potential annualized earnings from these funds. It provides a quick snapshot of an investment’s potential profitability, playing a pivotal role in helping investors compare and evaluate the performance of different money market funds.
How to Calculate the 7-Day Yield?
The formula for the 7-Day Yield is as follows:
7-Day Yield (%) = ((Value at End of 7 Days – Value at Start of 7 Days – Fees) / Value at Start of 7 Days) * (365 / 7)
In the calculator, you input the following:
Value at End of 7 Days: This represents the total value of the investment at the end of the seven days. It should include any earnings, such as dividends or interest accrued during this period.
Value at Start of 7 Days: This is the value of the investment at the beginning of the seven days.
Fees: Enter any fees associated with the investment, such as management fees or operational expenses.
The calculator computes the difference between the end value and the start value, subtracts the fees, and then divides this result by the start value. This gives the relative return over the seven-day period. To annualize this figure, the calculator multiplies the result by (365/7), converting the weekly yield into an equivalent annual rate. This annualized figure is what’s displayed as the 7-Day Yield.
7-Day Yield Calculation Example
Scenario: Consider a hypothetical money market fund called the “Global Growth Money Market Fund” (GGMF).
Given Data:
Start of the Week (Start Price): On Monday, one share of GGMF is valued at $50.
End of the Week (End Price): By Sunday, the value of one share has increased to $50.03.
Distributions: During the week, the fund pays out a small distribution of $0.01 per share.
Fees: GGMF incurs $0.005 in management fees per share for the week.
Calculation:
To calculate GGMF’s 7-Day Yield, we use the formula:
7-Day Yield (%) = ((Value at End of 7 Days – Value at Start of 7 Days – Fees) / Value at Start of 7 Days) * (365 / 7) = ((End Price + Distributions – Start Price – Fees) / Start Price) * (365 / 7)
Steps:
Calculate the total end value per share: $50.03 (end price) + $0.01 (distributions) = $50.04.
Calculate the net gain: $50.04 (total end value) – $50 (start price) – $0.005 (fees) = $0.035.
Calculate the relative return: $0.035 (net gain) / $50 (start price) = 0.0007 (or 0.07%).
Annualize the yield: 0.0007 * (365 / 7) = approximately 3.65%.
Thus, the 7-Day Yield for the Global Growth Money Market Fund would be around 3.65%.
