What is the difference between yield and interest rate?

Yield is the annual net profit that an investor earns on an investment. The interest rate is the percentage charged by a lender for a loan. The yield on new investments in debt of any kind reflects interest rates at the time they are issued. Yield refers to the return that an investor receives from an investment such as a stock or a bond.

Is yield the same as interest on a bond?

Yield and interest are highly-related when it comes to bonds. Your yield is based on the interest payments generated by a bond. However, because yield is the total profit you make based on your underlying investment, it might not always be the same as the rate of interest.

How is a bond yield calculated?

Your yield is calculated based on the value of your investment, while a bond’s interest rates are calculated based on the asset’s face value (which is the amount of money promised to a bondholder when the bond matures). If the price you paid is different from the bond’s face value, your yield will be different from the bond’s interest rate.