Which of the following is the correct definition of yield?

Which of the following is the correct definition of yield?

• A. It is the amount of return on an investment.
• B. It is the taxes paid on investments.
• C. It is the total invested capital.
• D. It is the risk-free rate of return.

Answer: (A)

Yield is the income your investment generates over a period. It captures the cash you receive from the asset, such as interest or dividends, typically expressed as a return relative to the price or cost of the investment. This focus on the actual cash flow distinguishes yield from other ideas: taxes paid on investments are obligations, not the return itself; the total invested capital is the principal you put in; and the risk-free rate of return is a benchmark used for comparison, not the investment’s income. Understanding yield helps you compare how much cash an investment will produce relative to its price, which is practical for budgeting and financial planning in a community association.

Yield is the income your investment generates over a period. It captures the cash you receive from the asset, such as interest or dividends, typically expressed as a return relative to the price or cost of the investment. This focus on the actual cash flow distinguishes yield from other ideas: taxes paid on investments are obligations, not the return itself; the total invested capital is the principal you put in; and the risk-free rate of return is a benchmark used for comparison, not the investment’s income. Understanding yield helps you compare how much cash an investment will produce relative to its price, which is practical for budgeting and financial planning in a community association.