How is 'yield' defined in the context of investments?

Yield, in the context of investments, is defined as the income return on an investment expressed as an annual percentage. This metric typically includes interest or dividends received from the investment relative to its price or value. By expressing yield as a percentage, investors can easily compare different investment opportunities, regardless of the type or size of the investment.

For example, if an investment generates $100 in income and was purchased for $1,000, the yield would be calculated as ($100 / $1,000) x 100, which yields a 10% return. This definition is especially important for income-generating assets such as stocks that pay dividends, bonds that pay interest, and real estate investments that provide rental income, as it helps investors determine the effectiveness of their investments relative to their cost.

Understanding yield is essential for making informed investment decisions, as it allows for the assessment of how much return can be expected based solely on income generation, without factoring in potential price changes or capital appreciation.