Investment Yield

Definition

Investment yield refers to the return on an investment, typically expressed as a percentage of the original investment amount. It represents the income or profit generated by an investment over a specific period of time, and is a crucial metric for evaluating the performance and potential of different investment options.

5 Must Know Facts For Your Next Test

1. Investment yield is calculated by dividing the annual income or return from an investment by the original investment amount.
2. Investors often use investment yield to compare the performance of different investment options, such as stocks, bonds, or real estate.
3. High investment yields may indicate higher risk, as investments with greater potential for growth often come with greater volatility and risk.
4. Investment yield can be affected by factors such as market conditions, interest rates, and the specific characteristics of the investment.
5. Reinvesting the income or return from an investment can lead to compounding, which can significantly increase the overall investment yield over time.

Review Questions

• How is investment yield calculated, and what does it represent?
  • Investment yield is calculated by dividing the annual income or return from an investment by the original investment amount, and is typically expressed as a percentage. It represents the return or profit generated by an investment over a specific period of time, and is a key metric used by investors to evaluate the performance and potential of different investment options.
• Explain how investment yield differs from simple interest and compound interest, and how these concepts are related.
  • Simple interest is the interest earned on the principal amount of an investment, without considering any compounding effects. Compound interest, on the other hand, is the interest earned on both the principal and the accumulated interest, resulting in exponential growth over time. Investment yield is a broader concept that encompasses both simple and compound interest, as well as other forms of investment income or return. The investment yield will be influenced by the underlying interest rate, compounding, and other factors that affect the overall return on the investment.
• Discuss how investment yield can be affected by various factors, and how investors can use this information to make informed decisions.
  • Investment yield can be affected by a variety of factors, including market conditions, interest rates, and the specific characteristics of the investment. For example, investments with greater potential for growth, such as stocks, often come with higher volatility and risk, which can result in higher investment yields. However, these higher yields may also indicate greater risk. Conversely, investments with lower risk, such as government bonds, may have lower investment yields. Investors can use this information to compare the performance and potential of different investment options, and make informed decisions that align with their investment goals, risk tolerance, and overall financial strategy.

Related terms

Simple Interest: Simple interest is the interest earned on the principal amount of an investment, without considering any compounding effects.

Compound Interest: Compound interest is the interest earned on both the principal and the accumulated interest, resulting in exponential growth over time.

Dividend Yield: Dividend yield is the annual dividend paid per share divided by the current share price, expressed as a percentage.