Yield represents the earnings generated on an investment over a specific period, expressed as a percentage of the investment's cost or current market value. It is commonly used for bonds, dividend-paying stocks, and other income-generating assets.
For bonds, yield is calculated as the annual coupon payment divided by the bond's price. For stocks, dividend yield is the annual dividend per share divided by the stock price. For example, if a stock costs $100 and pays $5 in annual dividends, its dividend yield is 5%.
Yield helps investors compare the income potential of different investments and make decisions based on their income needs and risk tolerance.