Yield.😁 is essentially the annual return🎈 on your investment as a percentage of your original investment.
It is important as you can compare the performance of various financial assets prior to investing.
This can be either from an:
How is yield calculated📊?
dividends per share /share price x 100
Stocks are known to be more risky than bonds and for that reason they will need to have a higher yield in order to attract investors.
Annual interest payments/bond price x 100
Bonds are known to be a more secure investment with guaranteed returns and for this reason they don't need too offer higher yields to attract investors except they are junk bonds.😈
Yield changes as the price of the asset changes so if you are calculating return in relation to the price you paid for the asset then thats a fixed number but if you care calculating yield based on the current price of the asset which may have moved up or down then your current yield may have moved up or down.
Yield is used to calculate how profitable an asset will be while returns are used to calculate past performance.
As prices rise, yields fall. As prices fall, yields rise.😳😳
Yield and risk share a close relationship. The more the risk, the higher the yield. This isn't a rule of thumb and should be evaluated on a case by case basis.