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Concept
Yield (finance)
Summary
In finance, the yield on a security is a measure of the ex-ante return to a holder of the security. It is one component of return on an investment, the other component being the change in the market price of the security. It is a measure applied to fixed income securities, common stocks, preferred stocks, convertible stocks and bonds, annuities and real estate investments.
There are various types of yield, and the method of calculation depends on the particular type of yield and the type of security.
Fixed income securities
Bond valuation
The coupon rate (or nominal rate) on a fixed income security is the interest that the issuer agrees to pay to the security holder each year, expressed as a percentage of the security's principal amount (par value).
The current yield is the ratio of the annual interest (coupon) payment and the bond's market price.
The yield to maturity is an estimate of the total rate of return anticipated to be earned by an investor who buys a bond at
Official source
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