Risk glossary

 

Yield

The interest rate that will make the net present value of the cash flows from an investment equal to the price (or cost) of the investment. The net present value is the present value of future cash flows, discounted at the present cost of capital.

The current yield relates the annual coupon yield to the market price by dividing the coupon by the price divided by 100, neglecting the time value of money or potential capital gains and losses.

The simple yield-to-maturity takes into account the effect of the capital gained or lost at maturity, as well as the current yield.

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