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Yield Definition

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?