In most cases, yield refers to the capital income an investor receives from an investment, either being stocks or shares.
Investors tend to purchase assets or stocks that could potentially offer them a high yield, which would in return result in trader money. The investor normally chooses a range of stocks or investment opportunities based on varying factors and risks before completing a purchase.
Higher-yielding stocks are more lucrative and sometimes the most preferred option on the market.
In investing, the yield is also referred to as the physical dollar amount of dividends that are paid out to investors by a publicly-traded company.
Yield can be calculated in different ways, but the most common formula is:
Income / Investment Value (x 100 for a percentage figure)
For example, LucasBlue stocks are trading at $10.50 per share, and pay a dividend of $0.55. The dividend yield would then be, $0.55 / $10.50 = 0.052 x 100 = 5.2%.
Stock return is the simplest way to determine the yield. For example, if LucasBlue stock prices grow from $10.50 to $12.75 per share, the stock yield would then be $2.25 per share or $12.75 – $10.50 = $2.25.
The second method to determine stock yield is with a rate of return. The formula works as follows:
Final Investment Value – Starting Investment Value / Starting Value x 100
For example, the starting investment value was $3,500 and the final investment value is $4,600. The rate of return would then be calculated as, $4,600 – $3,500 / $3,500 x 100 = 31.4%.
Bond Yield: The final is bond yield, is calculate as follows:
Interest on bond / Chosen Price x 100
Let’s say for example, a bond with a value of $6,000 pays an annual interest of $130, the bond yield would be 2.1% or $130 / $6,000 x 100 = 0.021 or 2.1%
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