Constant yield method

Constant yield method

Allocation of annual interest on a zero-coupon security for income tax use.

Constant Yield Method

A way to calculate the yield on a discount bond or zero-coupon bond for tax purposes. The constant yield method usually results in a lower tax liability but is often more difficult to calculate. One may choose to use the constant yield method or the ratable accrual method when one buys the bond. Afterward, however, one must continue to use the same method until the bond matures or becomes sold.