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Yield is a term that is often used in the world of investment, especially in financial instruments such as bonds and stocks. Yield or investment yield is an important measure of investment performance to calculate and monitor.
In this article, we will discuss more deeply about yield, what are the types of yields, and how to calculate them.
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The definition of yield is
Yield is one of the terms that is often used in the world of investment. Yield can be interpreted as the ratio between the yield or return obtained from the investment and the amount of money invested.
Yield is usually expressed as a percentage and is an important measure of investment performance.
In investing, the main goal is to obtain maximum profits with minimal risk. Therefore, investors need to understand the concept of yield to optimize the return on investment obtained.
In investment, the higher the yield obtained, the greater the profit that can be obtained by the investor. However, high yields also mean higher risks.
Therefore, investors need to take into account the risks associated with each type of investment before deciding to make an investment.
In conducting an investment analysis, yield is one of the factors that must be considered. By understanding yield, investors can make more informed investment decisions and optimize the profits obtained from the investments made.
Therefore, the definition of yield is important to be understood by every investor who wants to achieve maximum investment goals.
Types of Yield
In investment, yield is one of the important indicators of investment performance to monitor. There are several types of yields that are commonly used in the investment world, namely current yield, yield to maturity, and yield to call. Here's the explanation:
Current Yield
Current yield refers to the current return on investment. The current yield is calculated by dividing the annual coupon by the current market price and then multiplying it by 100%. For example, if a bond has an annual coupon of 5% and the current market price is $1,000, then the current yield is 5%.
Yield to Maturity
Yield to maturity refers to the return on investment when the bond reaches maturity. Yield to maturity can be calculated using a calculator or with a complex formula.
However, in general, yield to maturity is calculated by calculating the total return over the maturity period and calculating the average rate of return. Yield to maturity is often used by investors to compare one bond with another.
Yield to Call
Yield to call refers to the return on investment if the bond is called before maturity. Yield to call is calculated using a formula similar to yield to maturity. This yield to call is usually used on bonds that have the right to be called before maturity.
If a bond has a higher yield to call than yield to maturity, then the bond may be called earlier.
Each type of yield has advantages and disadvantages. As an investor, you need to understand the right type of yield for your investment. In addition, you also need to take into account the investment risks and ongoing market conditions before deciding to invest.
By understanding the types of yields, investors can make more informed investment decisions and optimize the profits obtained from the investments made.
How to Calculate Yield
Yield is one of the measures of investment performance that is important to monitor. To calculate yield, there are several ways that can be done, depending on the type of investment made. Here are some ways to calculate yield:
Bond yield
To calculate the bond yield, it can be done using the following formula:
Yield = (Annual Coupon / Bond Price) x 100%
For example, if a bond has an annual coupon of 5% and the current price of the bond is $1,000, then the yield on the bond is 5%.
Stock yield
To calculate the stock yield, it can be done using the following formula:
Yield = (Dividend per Share / Share Price) x 100%
For example, if a stock has a dividend per share of $2 and the current stock price is $50, then the stock's yield is 4%.
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What is Dividend? How to Calculate and Procedure |
Real estate yield
To calculate real estate yield, it can be done using the following formula:
Yield = (Total Net Income / Property Price) x 100%
For example, if a property has a total net income of $10,000 and the property is priced at $100,000, then the yield on that property is 10%.
Deposit yield
To calculate the deposit yield, it can be done using the following formula:
Yield = (Interest / Deposit Amount) x 100%
For example, if the interest on the deposit is 2% and the deposit amount is $10,000, then the deposit yield is 2%.
In calculating yield, it is important to pay attention to the ongoing market conditions. Yields can fluctuate along with changes in market prices and interest rates.
Therefore, investors need to take into account investment risks before deciding to invest. By understanding how to calculate yield, investors can monitor investment performance and make more informed investment decisions.
FAQs
Here are some frequently asked questions around yield:
What is yield?
Yield is a measure of investment performance that calculates the amount of return or profit obtained from an investment in the form of a percentage.
Why is yield important to monitor?
Yield is important to monitor because it can help investors determine whether an investment is profitable or not. The higher the yield of an investment, the greater the expected return.
How do you calculate yield?
The method of calculating yield depends on the type of investment made, such as bond yield, stock yield, real estate yield, or deposit yield. Each type of investment has a different formula for calculating yield.
What affects the yield of an investment?
The yield of an investment can be influenced by factors such as changes in market prices, changes in interest rates, and investment risks related to the type of investment made.
What is the difference between yield and return?
Yield and return are measures of investment performance, but they have differences. Yield calculates the percentage of return generated from an investment, while return calculates the amount of money earned from an investment.
How do I compare the yield of an investment with other investments?
The way to compare the yield of an investment with other investments is to compare the yield obtained from the investment with the yield obtained from other investments at the same time. Thus, investors can choose investments that provide higher yields and are more profitable.
In investing, it is important to understand the concept of yield and take into account investment risks. By understanding the FAQs about yield, investors can make more informed investment decisions and optimize their expected return on investment.
reference:
"What is Yield? Definition, Formula, and Example." The Balance. Retrieved on March 1, 2023, from https://www.thebalance.com/what-is-yield-417080.
"Yield Definition." Investopedia. Retrieved on March 1, 2023, from https://www.investopedia.com/terms/y/yield.asp.
"Deposit Yield: Definition, Calculation, and Examples." Lifepal. Retrieved on March 1, 2023, from https://lifepal.co.id/media/yield-deposito/.-0.webp)
