Required Yield

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  2. Yield

    The income return on an investment. This refers to the interest ...
  3. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  4. Premium Bond

    1) A bond that is trading above its par value. A bond will trade ...
  5. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  6. Impact investing

Related Articles
  1. The Advantages Of Bonds
    Investing

    The Advantages Of Bonds

  2. Advanced Bond Concepts
    Bonds & Fixed Income

    Advanced Bond Concepts

  3. Bond Basics Tutorial
    Retirement

    Bond Basics Tutorial

  4. Introduction To Commercial Paper
    Bonds & Fixed Income

    Introduction To Commercial Paper

comments powered by Disqus
Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  4. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center