Calculation of yield on bond, FD, and stock
Yield is broadly defined as an income return over investment made.
Yield= Total yield received/ initial amount invested *Total number of years
In case, you have invested Rs 20,000 for over 2 years, you will receive a yield amount of 2.5% if the yield earned is Rs 1,000.
1,000/10,000*2= 2.5 or 2.5%
A) Calculation of yield on bonds
Yield of a bond = coupon amount/bond price* 100
If you have a bond priced at Rs 1,000 and the coupon rate is 8%, then the yield will come up to Rs 80 per annum.
This is in the case where the bond prices don’t change with change in liquidity conditions in the market. Here normal yield comes out to be 8%.
In case, bond prices decrease from Rs 1,000 to Rs 800 (but coupon rate still remaining the same) then yield comes out to be
Yield= Rs 80 (coupon amount)/ 800 (bond price at present) *100 = 10%
If the bond prices increase from Rs 1,000 to Rs 1,200 then you are still liable to get same coupon rate of 8%, as it is fixed.
Yield= Rs 80 (coupon amount)/ 1,200 (bond price at present) *100 = 6.7%
B) Calculation of yield on Fixed Deposits (FD)
FD scheme provides its investor interest per annum which can be compounded annually, half yearly or quarterly.
Yield on FD = Amount received / Initial amount invested * years of investment in scheme
For instance, a FD scheme offers you 10% annualized returns over 2 years then and you invest Rs 10,000 here (and interest rates are compounded yearly) then yield comes out as
Interest on first year = Rs 10,000*10% = Rs 1,000
Interest on second year = Rs 11,000 (Rs 10,000 as principal amount plus interest earned in first year) *10% = Rs 1,100
Yield = Rs 2,100 (total interest over two years) / 10,000 / 2* 100 = 4.2% per annum
C) Calculation of yield on Stock
Yield of a stock = dividend received / stock price*100
For instance, if a company declares dividend of Rs 10 (100%) on every share of price Rs 400 with a face value of Rs 10 per share. The dividend yield of a stock comes out to be
Dividend yield = 10/400*100 = 2.5%