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Returns accrue as an amount or rate of produce, gain or profit for an enterprise or firm. It acts as a reward for and a motivational factor for investment. The objective is usually to maximize returns.
Typically, return on investment consist of income (interest, dividend) and capital gain or loss(difference between sale price of an asset and the price at which it was purchased).
INTERNAL RATE OF RETURN: Also known as the yield rate, IRR is the rate of discount which makes the present value of all the cash flows from the investment equal to the total cost of investment.
BOND RATE: The face value or the par value of the bond is known as the bond rate. For example, a bond issued for $ 300/- for 15 years and a 10% interest rate is said to have a coupon rate or bond rate of 10%.
BASIC YIELD: The actual lowest yield in the market by high grade bonds of a given maturity range. It is linked with highest quality bonds. It is akin to the pure rate of interest as it implies absolute safety and certainty of principal and interest. Moreover, the rate is not susceptible to losses due to changes in commodity prices and taxes.
NOMINAL AND REAL RETURNS: Nominal returns refer to the returns in actual dollars. Real returns refers to nominal returns adjusted for inflation or changes in price level of the economy.
GROSS AND NET YIELD: Gross yield refers to yield realized by the investor before paying taxes. Net yield refers to what remains with the investor after paying taxes.
Net Yield = Gross Yield(1- Tax Rate)
CURRENT YIELD: Also known as the running yield or market yield, this measurement does not take into account the appreciation or depreciation in the value of the bond. It is calculated as follows:
Current Yield = Coupon Interest per year/Current market price of the bond.
DIVIDEND YIELDS: This refers to the ratio as given below:
Returns accrue as an amount or rate of produce, gain or profit for an enterprise or firm. It acts as a reward for and a motivational factor for investment. The objective is usually to maximize returns.
Typically, return on investment consist of income (interest, dividend) and capital gain or loss(difference between sale price of an asset and the price at which it was purchased).
INTERNAL RATE OF RETURN: Also known as the yield rate, IRR is the rate of discount which makes the present value of all the cash flows from the investment equal to the total cost of investment.
BOND RATE: The face value or the par value of the bond is known as the bond rate. For example, a bond issued for $ 300/- for 15 years and a 10% interest rate is said to have a coupon rate or bond rate of 10%.
BASIC YIELD: The actual lowest yield in the market by high grade bonds of a given maturity range. It is linked with highest quality bonds. It is akin to the pure rate of interest as it implies absolute safety and certainty of principal and interest. Moreover, the rate is not susceptible to losses due to changes in commodity prices and taxes.
NOMINAL AND REAL RETURNS: Nominal returns refer to the returns in actual dollars. Real returns refers to nominal returns adjusted for inflation or changes in price level of the economy.
GROSS AND NET YIELD: Gross yield refers to yield realized by the investor before paying taxes. Net yield refers to what remains with the investor after paying taxes.
Net Yield = Gross Yield(1- Tax Rate)
CURRENT YIELD: Also known as the running yield or market yield, this measurement does not take into account the appreciation or depreciation in the value of the bond. It is calculated as follows:
Current Yield = Coupon Interest per year/Current market price of the bond.
DIVIDEND YIELDS: This refers to the ratio as given below:
- Per share (expected or prospective) dividends gross of tax/Current Market Price of the Share
EARNING YIELDS: This refers to the ratio as given below:
- Expected Earnings per Share/Current Market Price of the Share.
The dividend yield and expected yield will be the same in the situation where the firm distributes all the net earnings in the form of dividends. In other words, the firm has a 100% dividend payout ratio.
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