Understanding of Yield Bank

Understanding of yield bank -- Yield is the return on investment for an investor expressed as a percentage. Yield measures the rate of return on a financial instrument, for example, stocks or bonds, which is based on dividends and interest rates. The amount of yield depends on the trading method and how the trader deals with the market situation. Therefore it is advisable to always observe the market situation and any risks that may arise to minimize losses. In Indonesian, yield is also known as outcome or result. There are a few things that you will need to know when you want to know about understanding of yield bank.

Types of Yield

Current Yield

Yield is the ratio between the coupon interest and the price bond current. For example, suppose that a bond is purchased for Rp. 10,000,000 with a tenor of 5 years, then this bond offers a coupon of 10% per year. The current bond price is IDR 8,000,000, so the yield current can be calculated as: IDR 10,000,000 x 10% / IDR 8,000,000 x 100% = 12.5%. Now this is the basic of what you need to know when you learn the understanding of yield bank.

This result is your rate of return or yield for a year, if you invest in bonds at the company. Based on the value of the current yield, the investor gets a higher rate of return due to a decrease in bond prices.

Yield to Maturity

Yield at maturity is the rate of return on investment that investors get until the end of the bond tenor or when the initial investment value is fully returned to the investor. Yield at maturity is calculated by equating the bond's current price with all of its future rates of return. Yield to maturity is one of the important things when you learn about understanding of yield bank. This is not like the case with the calculation of the Yield to Maturity value. Yield to Maturity is the rate of return when you invest in bonds until maturity arrives. This result shows the rate of return, if you invest in bonds and choose hold until the bond issuer pays off the debt.

Yield to maturity refers to the rate of return on investment that investors will receive until the end of the bond tenor, or when the initial investment value is fully returned to the investor. The assumption is that investors do not sell the bonds and all payments are made on time. Yield to maturity is calculated by equating the current bond price with all the value of the rate of return obtained in the future. Income is calculated from principal and coupon value. There are actually more things about yield of maturity when learning about understanding of yield bank.

Difference of Current Yield and Yield to Maturity

When we look from the calculation variables, current yield and yield to maturity actually have some differences. Current yield is the current investment yield that is used to make an assessment or measure that connects the current bond price and the annual interest generated by bonds. Yield to maturity is the rate that is awaited for return regarding bonds.

Current yield and yield to maturity also have other differences, which is the investment yield of bonds to maturity is the total return on investment while the current investment yield cannot show this. If a bond is purchased at a discount from the face value, the yield to maturity will be higher than the current yield because the coupon discount from the face value of the bond can increase the investment yield. Current yield and yield to maturity is the basic knowledge that you need to know about understanding of yield bank.

On the other hand, if the premium is paid for bonds, the yield to maturity will be lower than the current yield. Current yield does not take into account the risk of reinvestment where yield to maturity does. So, the most important thing about the difference between current yield and yield to maturity is in terms of calculating the risk of reinvestment and the rate of return, the total investment return and current return. This is one of the key values to the understanding of yield bank. The determination of the value of current yield and yield to maturity above is also influenced by the type of bond based on interest payments that investors need to know. Bonds that are not subject to interest and periodic coupons. Investors will benefit from the difference in discount and the value of the bonds when traded.

This type of bond will provide regular interest rates to the investor in accordance with the agreement with the issuer. This type of bond provides investors with fixed rate coupon bonds until maturity arrives. The bond interest rates given to investors continue to change according to the money market index until maturity. That is the understanding of yield bank and also of how to calculate current yield and yield to maturity and the differences that investors need to know if they want to invest in bonds in the capital market.

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