Required Yield


DEFINITION of 'Required Yield'

The return a bond must offer in order to be a worthwhile investment. Required yield is set by the market and sets the precedent for how current bond issues will be priced.

BREAKING DOWN 'Required Yield'

For example, if the required yield increases to a rate that is greater than that of the bond's coupon, the bond will be priced at a discount. In this way, the investor acquiring the bond will be compensated for the lower coupon rate in the form of accrued interest. If the bond is not priced at a discount, investors will not purchase the issue because its yield will be lower than that of the market. The opposite occurs when the required yield decreases to a rate that is less than that of the bond's coupon. In this case, investor demand for the higher coupon will drive the bond's price up, making the bond's yield equivalent to market yield.

  1. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  2. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  3. Yield

    The income return on an investment. This refers to the interest ...
  4. Premium Bond

    1) A bond that is trading above its par value. A bond will trade ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
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