InvestorQ : What do we understand by the concept of Yield?
Aditi Sharma made post

What do we understand by the concept of Yield?

Answer
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Aashna Tripathi answered.
1 year ago


Yield refers to the percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note. There are many different kinds of yields depending on the investment scenario and the characteristics of the investment. When you talk of yield, you need to be clear on which yield you are talking about.

Yield to Maturity (YTM) is the most popular measure of yield in the Debt Markets and is the percentage rate of return paid on a bond, note or other fixed income security if you buy and hold the security till its maturity date.

Current Yield is the coupon divided by the Market Price and gives a fair approximation of the present yield. Therefore, Current Yield = Coupon of the Security (in %) x Face Value of the Security (viz. 100 in case of G- Secs.)/Market Price of the Security

E.g.: Suppose the market price for a 10.18% G-Sec 2012 is Rs.120. The current yield on the security will be (0.1018 x 100)/120 = 8.48%

The yield on the government securities is influenced by various factors such as level of money supply in the economy, inflation, future interest rate expectations, borrowing program of the government & the monetary policy followed by the government.