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:

1. IRR
2. Yield

- 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.

Download Spreadsheet to look at YIELD and IRR in Excel

Training Video on: What is Yield ?