Required Yield

How much would someone have to pay you to eat entire bushel of ghost peppers? How about to jump from a moving train? Or to try to ride a lion? What about a lion who just ate a bushel of ghost peppers?

When you do something risky, you have to get a consummate reward. You need to earn enough to justify the risk. That’s the idea behind a required yield.

The required yield is the amount of return that investors want to receive in order to take on a specific risk. The level is set by the market, and changes based on the risk level of the security.

Parking money in Treasury bonds, you will accept a relatively small return, since the investment is largely risk-free. Putting money into bonds issued by a company launching an Uber-like service offering rides to lions hopped up on ghost peppers? Probably need a much higher return.