### Finance Definitions 2,736

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### Yield

• Yield is most commonly associated with a money market fund's return. "Current Yield" is based on daily return, "Effective Yield" on the annual compounded return. Yield to Maturity: The annual rate of return an investor would receive if a bond were held until maturity.

Idaho Department of Finance - Cite This Source - This Definition
• Yield is the rate of return on an investment expressed as a percent.

Yield is usually calculated by dividing the amount you receive annually in dividends or interest by the amount you spent to buy the investment.

In the case of stocks, yield is the dividend you receive per share divided by the stock's price per share. With bonds, it is the interest divided by the price you paid. Current yield, in contrast, is the interest or dividends divided by the current market price.

In the case of bonds, the yield on your investment and the interest rate your investment pays are sometimes, but by no means always, the same. If the price you pay for a bond is higher or lower than par, the yield will be different from the interest rate.

For example, if you pay \$950 for a bond with a par value of \$1,000 that pays 6% interest, or \$60 a year, your yield is 6.3% (\$60 ÃÂ· \$950 = 0.0631). But if you paid \$1,100 for the same bond, your yield would be only 5.5% (\$60 ÃÂ· \$1,100 = 0.0545).

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### Yield Curve

• A yield curve shows the relationship between the yields on short-term and long-term bonds of the same investment quality.

Since long-term rates are characteristically higher than short-term rates, a yield curve that confirms that expectation is described as positive. In contrast, a negative yield curve occurs when short-term rates are higher.

A flat or level yield curve occurs when the rates are substantially the same.

### Zero-coupon bond

• Zero-coupon bonds, sometimes known as zeros, are issued at a deep discount to par value and pay no interest during their term.

At maturity, the bondholder receives par value, which includes the interest that has accrued since issue. For example, you may purchase a zero-coupon bond with a six-year term for \$13,500, and collect \$20,000 at maturity.

One advantage of zeros is that you can invest relatively smaller amounts and choose maturity dates to coincide with times you know you'll need the money - for example, when you expect college tuition bills to come due.

One drawback of zeros, however, is that income taxes are due annually on the interest that accrues, even though you don't receive the actual payment until the bond matures.

The exception occurs if you buy tax-exempt municipal zeros, on which no tax is due either during the term or at maturity. Another drawback is that zero coupon bonds are volatile in the secondary market, so if you have to sell before maturity, you might have a loss.

These bonds get their name - zero coupon - from the fact that coupon means interest in bond terminology, and there's no periodic interest.

• Browse Related Terms: Callable bond, Conversion price, Convertible bond, Deep discount bond, Exchange traded notes, Gilt-edged security, Indenture, Noncallable, Original issue discount, Par Value, Prerefunding, Redemption, Sinking fund, Zero-coupon bond, Zero-coupon convertible bond

### zone

• A geographical area shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map that reflects the severity or type of flooding in the area.

Federal Emergency Management Agency (FEMA) - Cite This Source - This Definition

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