Difference between investment yield and investment return

[ActuarialKropotkin]

I am a South African student preparing for Subject F102, i.e. the South African equivalent of Subject SP2.

I have noticed that the course notes, which are largely the same as Subject SP2's notes, sometimes talk about investment yield and at other times (mostly) about investment return. It appears as though these two terms are used interchangeably.

My understanding was that yield referred to the quotient of income (from the asset) and the asset's market price. Return, on the other hand, implied total return, i.e. income + capital gains. The solution to a question in the second chapter on Modelling states that the assumptions one would be interested in subjecting to sensitivity testing are, amongst others, "investment yield (income component)" and "investment yield (capital component)". This confused me.

My question is: is there a technical (actuarial) difference between the words yield and return in the context of investments and, more specifically, in the context of Subject SP2? I googled the difference, but the results all seemed to relate to the American uses of these terms. Can the two terms be used interchangeably or should I stick to referring to "investment return" (as I'm inclined to do)?

 

[Mark Willder]

I am a South African student preparing for Subject F102, i.e. the South African equivalent of Subject SP2.

I have noticed that the course notes, which are largely the same as Subject SP2's notes, sometimes talk about investment yield and at other times (mostly) about investment return. It appears as though these two terms are used interchangeably.

My understanding was that yield referred to the quotient of income (from the asset) and the asset's market price. Return, on the other hand, implied total return, i.e. income + capital gains. The solution to a question in the second chapter on Modelling states that the assumptions one would be interested in subjecting to sensitivity testing are, amongst others, "investment yield (income component)" and "investment yield (capital component)". This confused me.

My question is: is there a technical (actuarial) difference between the words yield and return in the context of investments and, more specifically, in the context of Subject SP2? I googled the difference, but the results all seemed to relate to the American uses of these terms. Can the two terms be used interchangeably or should I stick to referring to "investment return" (as I'm inclined to do)?

Hi

The word yield can be used in various ways.

Yes, income yield is the income divided by the price, eg the dividend yield.

However, we can also think of the gross redemption yield which is the internal rate of return earned on bonds and so includes both income and capital elements.

Yes, using investment return is a reasonable alternative, although we would normally refer to the yield on bonds, eg when talking about the yield curve.

Best wishes

Mark