Securities

Yield

Yield is the income return on an investment, expressed as a percentage, including interest or dividends received.

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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 TypeFormulaWhat It Measures
Nominal (Coupon) YieldAnnual Coupon ÷ Par ValueStated interest rate
Current YieldAnnual Coupon ÷ Market PriceIncome based on current price
Yield to Maturity (YTM)Complex calculationTotal return if held to maturity
Yield to Call (YTC)Complex calculationReturn 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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