The term yield is used to describe the annual return on the investments as a percentage of your original investment. The yield of a particular security represents the current market interest rate of the security. The yield is usually from dividend payments from a stock, Mutual Fund, Exchange Traded Fund or interest payments from a bond. One should consider the yield of a security based on the current market price when evaluating and comparing to other fixed income securities. The price of a fixed interest and the yield are inversely related so that when market interest rates rise, bond prices usually fall and vice versa.
Calculating the Yield of a Single-Period Investment
The yield of a single period investment is simply
A dividend yield is calculated by dividing the indicated annual dividend by the closing price of the stock. It provides the historical annual dividend relative to the current market price. Dividend yield is expressed in the percentage form.
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A bond's current yield is calculated by dividing the annual interest payment by the current market price of the bond. Current yield only captures the income generated by the investment. It avoids any changes in value from i.e., either gains or losses.
A bond's coupon yield is the simple interest paid by a bond annually as a percentage of maturity value. The coupon yield, also known as the coupon rate, is the annual interest rate established when the bond is issued.