yield

(noun)

In finance, the term yield describes the amount in cash that returns to the owners of a security. Normally it does not include the price variations, at the difference of the total return. Yield applies to various stated rates of return on stocks (common and preferred, and convertible), fixed income instruments (bonds, notes, bills, strips, zero coupon), and some other investment type insurance products

Related Terms

(noun)

The current return as a percentage of the price of a stock or bond.

Related Terms

Examples of yield in the following topics:

  • Yield to Maturity

    • The formula for yield to maturity:
    • Yield to put: same as yield to call, but when the bond holder has the option to sell the bond back to the issuer at a fixed price on specified date.
    • Yield to worst: when a bond is callable, puttable, exchangeable, or has other features, the yield to worst is the lowest yield of yield to maturity, yield to call, yield to put, and others.
    • The current yield is 5.56% ((5/90)*100).
    • Classify a bond based on its market value and Yield to Maturity

  • The Yield Curve

    • Based on the shape of the yield curve, we have normal yield curves, steep yield curves, flat or humped yield curves, and inverted yield curves .
    • The yield curve is normal meaning that yields rise as maturity lengthens (i.e., the slope of the yield curve is positive).
    • Sometimes, treasury bond yield averages higher than that of treasury bills (e.g. 20-year Treasury yield rises higher than the three-month Treasury yield).
    • An inverted yield curve occurs when long-term yields fall below short-term yields.
    • Because of the term premium, long-term bond yields tend to be higher than short-term yields, and the yield curve slopes upward.

  • The "Bond Yield Plus Risk Premium" Approach

    • A company's long-term debt has a yield to maturity of 6%.
    • Simply put, the yield on a bond is the rate of return received from the investment.
    • Treasury Bond yield)
    • The dividend yield plus projected earnings growth, minus the 10-year Treasury yield
    • Describe the process for the bond yield plus risk premium approach

  • Using the Yield Curve to Estimate Interest Rates in the Future

    • The yield curve is a simple financial chart or graph.
    • The yield curve is normal, meaning that yields rise as maturity lengthens (i.e., the slope of the yield curve is positive).
    • Investors price these risks into the yield curve by demanding higher yields for maturities further into the future.
    • Yield curves come in three standard types: the normal yield curve, the flat yield curve and the inverted yield curve.
    • Sometimes, treasury bonds yield averages higher than treasury bills (e.g. 20-year treasury yield rises higher than the three-month treasury yield).

  • Dividend Yield Ratio

    • The name of the preferred share will typically include its yield at par.
    • The historic yield is calculated using the following formula:
    • Its dividend yield would be calculated as follows: 1/20 = 0.05 = 5%.
    • The yield for the S&P 500 is reported this way.
    • Estimates of future dividend yields are by definition uncertain.

  • Calculating the Yield of a Single-Period Investment

    • The whole point of making an investment is to get a yield.
    • There are a number of different ways to calculate an investment's yield, though.
    • The most basic type of yield calculation is the change-in-value calculation.
    • The EAR is a form of the Annual Percentage Yield (APY).
    • The Annual Percentage Yield is a way or normalizing the nominal interest rate.

  • Calculating Yield to Maturity Using the Bond Price

    • The yield to maturity is the discount rate that returns the bond's market price: YTM = [(Face value/Bond price)1/Time period]-1.
    • The yield to maturity is the discount rate which returns the market price of the bond.
    • Formula for yield to maturity: Yield to maturity(YTM) = [(Face value/Bond price)1/Time period]-1
    • As can be seen from the formula, the yield to maturity and bond price are inversely correlated.
    • Even though the yield-to-maturity for the remaining life of the bond is just 7%, and the yield-to-maturity bargained for when the bond was purchased was only 10%, the return earned over the first 10 years is 16.25%.

  • Value of a High Dividend

    • A high-yield stock is generally considered as a stock whose dividend yield is higher than the yield of any benchmark average such as the 10 year U.S.
    • There is no set standard for judging whether a dividend yield is high or low.
    • High dividend yields are particularly sought after by income and value investors.
    • High-yield stocks tend to outperform low yield and no yield stocks during bear markets because many investors consider dividend paying stocks to be less risky.
    • But not all firms offering high dividend yields are steady, reliable investments.

  • The Term Structure

    • Term structure of interest rates is often referred to as the yield curve.
    • In finance, the yield curve is a curve showing several yields or interest rates across different contract lengths (2 month, 2 year, 20 year, etc...) for a similar debt contract.
    • Because of the term premium, long-term bond yields tend to be higher than short-term yields, and the yield curve slopes upward.
    • This explains the stylized fact that short-term yields are usually lower than long-term yields.
    • The US dollar yield curve as of February 9, 2005.

  • Term Structure of Interest Rates

    • Yield curve for years 2000 and 2006 predicted the recessions in 2001 and 2007.
    • Yield curve could display a positive, negative, or flat slope and has two characteristics.
    • Economists use the yield curve to predict economic activity.
    • Although many economists and analyst use the yield curve to forecast recessions, the yield curve is not a perfect predictor.
    • The Yield Curve for U.S. government securities for three specific dates