Investing & Markets

What is Yield?

Yield is the income an investment generates, expressed as a percentage of its price or value. It is calculated based on the asset's purchase price or current market value. Yield measures the cash flow return of an asset, separate from capital appreciation.

For stocks, the yield is the dividend yield (annual dividends divided by the stock price). For bonds, yield can refer to the coupon yield (the annual interest payment divided by the bond's face value) or the current yield (annual interest divided by the bond's current market price). For savings accounts or CDs, it is the Annual Percentage Yield (APY).

Yield and asset prices are inversely related in fixed-income markets. If bond prices rise, their yield to maturity falls, and if bond prices fall, their yield rises. Lenders and income-seeking investors track yield to evaluate the cash flow potential of their portfolios.

Quick Facts

Stock Yield MetricDividend yield (annual dividend ÷ share price)

Bond Yield MetricCoupon yield and yield to maturity (YTM)

Price RelationshipInverse correlation in fixed-income assets

Banking Yield MetricAnnual Percentage Yield (APY) for savings

PRACTICAL EXAMPLE

An investor buys a bond with a $1,000 face value and a 6% coupon rate ($60 annual interest). If the bond's market price drops to $900, the current yield rises to 6.67% ($60 ÷ $900), representing a higher yield for new buyers.

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RELATED TERMS

Learn More Key Concepts

StockA financial security representing a fractional share of ownership in a corporation, conveying voting rights and claims on assets.

BondA debt security representing a loan made by an investor to a borrower, typically a corporation or government agency.

DividendA distribution of a portion of a corporation's earnings to its shareholders, typically paid in cash or additional shares.

P/E RatioA valuation ratio calculated by dividing a company's current share price by its earnings per share.

APY (Annual Percentage Yield)The real annual rate of return earned on a deposit account, accounting for the compounding of interest over one year.

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