Which is which? and which is higher for various asset classes? Last minute confusion! Also - is this the Y of SYSTEM T? Thank you!
Return The total return on an investment consists of income and capital gain. For bonds held to maturity we know the total return in advance and call this the gross redemption yield (GRY). For other asset classes the cashflows are generally unknown so we would refer to the return rather than the yield. The expected return is normally higher for the more risky assets. So the assets in order of their returns from highest to lowest are equities, property, bonds, cash. Running yield The running yield is the annual income on an investment divided by its current market value. So running yield looks only at the current income and ignores capital growth. For equities we have the dividend yield and for property we have the rental yield. The running yield for a bond would be the coupon divided by the price. If the price is equal to the redemption proceeds then the running yield will be the same as the GRY. Assets with high potential capital growth are likely to have lower current income and hence lower running yield. So the assets in order of their running yield from highest to lowest is normally bonds, property, equities, property. Y in SYSTEM T refers to all types of yield. So for equities you may want to talk about the dividend yield, while for bonds you may want to talk about the gross redemption yield. I hope this helps. Good luck with the exam. Mark
Hello, Mark Wilder quote: So the assets in order of their running yield from highest to lowest is normally bonds, property, equities, property. Is this a typo? If not, would you mind explaining please?? Sorry for invading your thread thistleandspice. Thank you!
Sorry, thanks for pointing out the mistake. I should have said: So the assets in order of their running yield from highest to lowest is normally bonds, property, equities. Best wishes Mark
