Yield
Yield is the income return on an investment, expressed as a percentage, including interest or dividends received.
Exam Tip
Current yield only considers income, not capital gains. YTM is the complete picture.
What is Yield?
Yield measures the income return on an investment. For bonds, it represents the interest earned relative to the price paid. For stocks, it's the dividend relative to the stock price.
Types of Bond Yields
| Yield Type | Formula | What It Measures |
|---|---|---|
| Nominal (Coupon) Yield | Annual Coupon ÷ Par Value | Stated interest rate |
| Current Yield | Annual Coupon ÷ Market Price | Income based on current price |
| Yield to Maturity (YTM) | Complex calculation | Total return if held to maturity |
| Yield to Call (YTC) | Complex calculation | Return if called early |
Yield vs. Price Relationship
- Bond bought at discount (below par): Current Yield > Coupon Yield
- Bond bought at premium (above par): Current Yield < Coupon Yield
- Bond bought at par: Current Yield = Coupon Yield
Dividend Yield (Stocks)
Dividend Yield = Annual Dividend ÷ Stock Price
Example: $2 annual dividend on a $50 stock = 4% dividend yield
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Related Terms
Bond
SecuritiesA bond is a fixed-income debt security where the issuer owes the holder a debt and pays interest (coupon) plus principal at maturity.
Dividend
SecuritiesA dividend is a distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional shares.