#### Step

Determine the number of payment periods ("n") in a year. Some securities pay every six months, in which case the number of periods is two. In this example, the number of payment periods is 12 (monthly).

#### Step

Determine the interest rate ("i"). This is the nominal or stated interest rate on the security. For example, say you own a bond that pays 6 percent every month.

#### Step

Divide the interest rate (in decimal form) by the number of periods. In this example, .06 / 12 = .005.

#### Step

Find the sum of 1 + "i/n". The calculation is 1 + .005 = 1.005.

#### Step

Take the sum of the calculation in Step 4 to the exponent "n." The calculation is 1.005^12, or 1.061677812.

#### Step

Subtract 1 for the effective (annualized) yield. The calculation is 1.061677812

- 1 = .061677812, or 6.17 percent.