Many times, the same word can have several different meanings depending on the context in which it is used. In finance, the world yield can have several meanings depending on its use or on the adjective used to modify it. Generally, yield means some kind of return on an investment of some kind. In its most general usage, it is not specific on either the return or the investment. For example, we may speak of farm yield as bushels of corn per acre, or bushels of wheat per acre, or simply that the farm yields a good living. In semiconductors, we speak of the yield as the percentage of total output that meets required specifications.

In finance, the word yield may have at least four meanings depending on its use. They are nominal yield, current yield, discount yield, and true (or bond) yield. This chapter examines each of these meanings. You should understand these terms, what they mean, when and how to use them, how they relate to one another, and how to compute them. We have already discussed true, or bond, yield and discount yield.

When you finish this chapter, you should understand the meanings of these terms, how to compute them, and when they are used.