Yield
Candlefocus EditorThe calculation of yield relies on a few factors. The asset must have a stated face value or principal, potential income from the asset, such as interest or dividends, as well as an expiration date that is known and factored into the calculation. Yields can either be a fixed return, where the principal and income are known, or a variable return, where the future principal and income may change depending on market conditions.
Yield can be an effective measure for investors when evaluating different investments. Generally, the higher the yield, the higher the potential return for the investor. However, it is important to note that a higher yield can also be associated with higher risk, such as with a bond that is carrying a higher interest rate because it has a lower credit rating. Furthermore, yield can also be impacted by external factors, such as interest rate movements and market volatility, that could affect the principal and income generated by the asset.
Yield can be a useful metric to use when comparing different investments with different yields and risks. Potential investors should be aware that while yield can provide an indication of the return of an investment, other factors should also be assessed before making any determinations. These factors could include measured risk of the investment, the impact of market volatility, and the investor's own goals and risk tolerance. Yield can be used as one tool to assess potential investments, but should not be used as the only criteria in a portfolio.