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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Yield

Definition:

Yield is just the dough you get back after investing an initial sum. It can come in the flavor of bond yield—like a coupon—paying whatever percent face value, based on par value. That is, for a bond trading at par, with face yield of 5%, that bond pays the investor 25 bucks twice a year for that 5% face on a grand invested. 

Got it? It is just the percentage rate of return on a bond.

But what if the price of the bond got cut in half? Maybe something bad happened to the company—patent law suit or CEO caught in bed with an alien from Mars—so investors suddenly feared for the creditworthiness of the company. And they sold heavily their bond positions. Now the bonds are selling at 50 cents on the dollar or $500 a unit instead of the standard $1,000. The bonds still have to pay the 50 bucks a year interest but now they yield 10%... 50 bucks of the grand at which they were created.

But yield is also derived in the land of equities. Coca Cola stock trades at 50 bucks a share and pays a $1 dividend. It yields 1/50 = 2%. You get 25 cents 4 times a year for each share you own. And another big note: Equities pay dividends 4 times a year while bonds pay twice.