What is a 'Realized Yield'

Realized yield is the actual return earned during the holding period for an investment, and may include dividends, interest payments and other cash distributions. The term may be applied to a bond sold prior to its maturity date or a dividend-paying security. Generally speaking, the realized yield on bonds includes the coupon payments received during the holding period, plus or minus the change in the value of the original investment, calculated on an annual basis.

BREAKING DOWN 'Realized Yield'

The realized yield on investments with maturity dates is likely to differ from the stated yield to maturity under most circumstances. One exception occurs when a bond is purchased and sold at face value, which is also the redemption price of the bond at maturity. For example, a bond with a coupon of 5% that is purchased and sold at face value delivers a realized yield of 5% for the holding period. The same bond redeemed at face value when it matures delivers a yield to maturity of 5%. In all other circumstances, realized yields are calculated based on payments received and the change in value of principal relative to the amount invested.

Realized Yields With Bonds

Realized yield is the total return when a bond is sold prior to maturity. For example, a bond maturing in three years with a 3% coupon purchased at face value of $1,000 has a yield to maturity of 3%. If the bond is sold exactly one year after purchase at $960, the loss of principal is 4%. The coupon payment of 3% brings the realized yield to negative 1%. If the same bond is sold one year later at $1,020 for a 2% gain in principal, the realized yield is increased to 5% due to the 3% coupon payment.

Early CD Withdrawal

Certificate of deposit investors who cash out prior to the maturity date are often charged a penalty. On a two-year CD, the typical penalty for early withdrawal is six months of interest. For example, say an investor who cashes out a two-year CD paying 1% after one year accrues $1,000 of interest. The penalty of six months equates to $500. After paying the penalty, the investor nets $500 over one year for a realized yield of 0.5%.

Fixed-Income Funds

The calculation for realized yield also applies to exchange-traded funds (ETF) and other investment vehicles without maturity dates. For example, an investor who holds an ETF paying 4% interest for exactly two years and sells for a 2% gain has earned 4% per year. The gain in principal is amortized over the two-year holding period for a 1% gain per year, bringing the realized yield to 5% per year.

RELATED TERMS
  1. Running Yield

    The annual income on an investment divided by its current market ...
  2. Effective Yield

    The yield of a bond, assuming that you reinvest the coupon (interest ...
  3. Coupon Rate

    The yield paid by a fixed income security. A fixed income security's ...
  4. Required Yield

    The return a bond must offer in order to be a worthwhile investment. ...
  5. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  6. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
Related Articles
  1. Investing

    How Do I Calculate Yield To Maturity Of A Zero Coupon Bond?

    Yield to maturity is a basic investing concept used by investors to compare bonds of different coupons and times until maturity.
  2. Financial Advisor

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
  3. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  4. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  5. Investing

    Calculating Yield to Worst

    Yield to worst is the lowest possible yield on a bond that may be called in the future.
  6. Investing

    If I Buy A $1,000 10-Year Bond With A 10% Coupon, Will I Receive $100 Each Year?

    Investors can count on a fixed-income security paying them a certain amount of cash as long as the security is held until maturity and the issuer doesn’t default.
  7. Investing

    Explaining the Coupon Rate

    Coupon rate is the stated interest rate on a fixed income security.
RELATED FAQS
  1. How do I calculate yield to maturity of a zero coupon bond?

    Find out how to calculate the yield to maturity for a zero coupon bond, and see why this calculation is more simple than ... Read Answer >>
  2. How can I use the holding period return yield to determine whether or not I should ...

    Find out how to use the holding period return yield formula to determine whether it is a good time to sell your bond based ... Read Answer >>
  3. What is the difference between the yield of stock and the yield of a bond?

    Explore and understand the various meanings of the investment term "yield" as it is applied to equity investments and bond ... Read Answer >>
  4. How do I use the holding period return yield to evaluate my bond portfolio?

    Find out how to use the holding period return yield formula to evaluate the performance of bonds in your portfolio, and view ... Read Answer >>
  5. Can the marginal propensity to consume ever be negative?

    Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the basic components of bonds and how ... Read Answer >>
Hot Definitions
  1. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  2. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  3. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  4. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
  5. Dilution

    A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur ...
  6. Agency Problem

    A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. The problem ...
Trading Center