Meaning/ Definition:
Companies pay interest on bonds and dividends on shares on
the face value (nominal value) of the instrument. When these instruments are
freely traded on stock exchanges, the price actually paid by the investor for
the share or bond is different from the face value. Therefore, when the
interest or dividend is calculated on the actual price paid, then the return is
different from the one calculated on the face value. This is the actual return
or yield obtained by the investor.
Examples:
Following example illustrates interest yield on a bond:
A separate article dividend yield explains with example in the context of dividends.
Related Links:
Distinction Between Rate of Interest and Interest Yield
What is the Relationship Between a Bond's Market Price and Its Yield to Maturity?
What is the Relationship Between a Bond's Market Price and Its Yield to Maturity?
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