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Yield

Yield refers to the income return on an investment, typically expressed as a percentage of the investment’s cost, market value, or face value. In the context of bonds, yield is the interest income earned on the bond relative to its price. For stocks, yield refers to the dividend income relative to the stock price. Yield helps investors assess the income-generating potential of an asset and is commonly used in fixed-income securities, dividend-paying stocks, and real estate investments.

Example

If a bond pays $50 in annual interest and is purchased for $1,000, the yield is 5%.

Key points

• Represents the income return on an investment, expressed as a percentage.

• For bonds, yield is the interest income relative to the bond’s price.

• For stocks, yield refers to dividend income relative to the stock price.

Quick Answers to Curious Questions

Yield is calculated by dividing the bond’s annual interest payments by its price, giving the return as a percentage of the investment.

Current yield is the annual income relative to the bond’s price, while yield to maturity (YTM) considers both interest payments and any capital gains or losses if the bond is held to maturity.

Yield helps income-focused investors evaluate the return they can expect from dividends or interest payments relative to the investment’s cost.