8. Excel For Finance Tips - What is Yield ?
What is Yield ?
Remember IRR ?... well, simply put, it's another name for that.
It's the return you get from a series of cash flows, but applies mostly to Bonds. Lets prove that using Excel functions.
Here, we have a 5 year Zero Coupon Bond that trades at 75. This means that you pay 75 for it today, and get back 100 in 5 years time.
I have entered 2 calculations:
- Note: The results are both the same.. 5.92%
Lets see what it looks like for a 5 year 5% coupon bond. A 5% coupon bond is a bond that pays 5 every year for 5 years, then pays another 100 at year 5.
- Note: IRR and YIELD both return the same.. 11.92%
IRR and YIELD are not always the same.. YIELD is a more complicated version of IRR, but if we assume annual cash flows, we can make the functions return the same result.
Training Video on: What is Yield ?