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Simple English definitions for legal terms
yield on investment
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A quick definition of yield on investment:
Yield on investment is the profit you make from an investment, shown as a percentage of the money you put in. For example, if you invest $100 and make a profit of $10, your yield on investment is 10%. There are different types of yield, such as coupon yield which is the interest paid on a bond, and current yield which is the interest paid on a bond divided by its current market price. The higher the yield, the better the investment. Yield can also mean giving up a right or performing a service owed to someone.
A more thorough explanation:
Definition: Yield on investment refers to the profit earned as a percentage of the investment. It is also known as return or rate of return.
- Coupon Yield: The annual interest paid on a bond divided by its par value.
- Current Yield: The annual interest paid on a bond divided by its current market price.
- Discount Yield: The yield on a security sold at a discount.
- Earnings Yield: The earnings per share of a security divided by its market price.
- Net Yield: The profit or loss on an investment after deducting all appropriate costs and loss reserves.
For example, if you invest $1000 in a bond that pays an annual interest of $50, the yield on investment would be 5% ($50/$1000).
Another example would be if you buy a stock for $50 per share and it earns $2 per share in a year, the earnings yield would be 4% ($2/$50).
These examples illustrate how yield on investment is calculated and how it can be used to evaluate the profitability of an investment.