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what is y | y is a letter that appears on a stock symbol specifying that a particular stock is an american depositary receipt adr a stock symbol also known as a ticker symbol is a unique series of letters that are a shorthand way of identifying a company s specific stock a stock symbol can include a letter at the end of the symbol that conveys information about that stock s trading status these symbols help investors differentiate one type of investment from another for example class a shares of a stock will have the letter a at the end of the stock symbol while class b shares will have the letter b all mutual fund tickers have an x at the end of their symbol to differentiate them from other security types stock symbols that end in the letter y are american depositary receipts adrs which are negotiable certificates that represent shares of a foreign stock understanding yy stock is a type of foreign security traded on u s stock exchanges investors can identify that these shares are american depositary receipts by the y code appearing at the end of the stock symbol y stock offers investors one way to invest in foreign companies other ways to invest in companies with foreign domiciles include international funds u s foreign stock initial public offerings ipos and direct investments in foreign markets investment firms that want to issue adrs must register them with the securities and exchange commission sec using sec form f 6 1 american depositary receipts adr american depositary receipts are traded on a u s exchange these shares are uniquely offered through a process that involves a partnership between the foreign company and a u s depositary bank foreign companies deposit their shares at a u s bank and the bank issues depositary receipts dr on their behalf these depositary receipts are negotiable certificates that represent the foreign company s shares traded on a local stock exchange a u s bank issued the first adr in 1927 to enable investors to purchase shares of a british department store 2 adrs were introduced in response to the difficulties involved with buying shares in foreign corporations on foreign exchanges they help to alleviate some of the challenges involved with foreign exchange trading such as currency fluctuations and market price changes adrs offer a convenient way to invest in a foreign company and are also cost efficient u s banks and brokerages can purchase bulk lots of shares from a foreign corporation and reissue them as adrs on the new york stock exchange american stock exchange nasdaq or over the counter markets also known as off exchange trading in some cases the shares may not have a 1 1 ratio with share issuance representing groups of shares prices for adrs are quoted in u s dollars and dividends are paid in u s dollars the trading and settlement process is the same as shares that are directly listed on the u s exchanges adr distributions are managed by the depositing bank adrs may also have special tax treatment adr risks include inflation risk which refers to the risk that the value of the issuing country s currency will erode over time thus impacting the value of the adr stock exchange symbolsu s listed adr securities will usually have a two to five character ticker symbol with the last character being the letter y the y identifies the stock as an american depositary receipt when investors buy or sell adrs they are trading in the u s market and the trade will clear in u s dollars y stock listings are typically most common on over the counter markets while adrs trading large u s exchanges may or may not include the letter examples of y stock listingstwo examples of y stock listings include adidas ag and bnp paribas s a both stocks trade on the over the counter market adidas ag a german sportswear company trades with the symbol addyy financial services firm bnp paribas s a trades with the symbol bnpqy | |
what is a y share | y shares are an institutional share class offered in open end mutual funds targeting institutional investors the share class often has a high minimum investment beginning at approximately 25 000 this share class also offers the benefit of waived or limited load charges and lower comparative total annual fees | |
how y shares work | y shares are an alternative to i shares which are in the most commonly offered mutual fund share class for institutional investors y shares have features and characteristics that are tailored to institutions high minimum investments are one of the most distinguishable characteristics of y shares and other institutional shares classes minimum investments typically begin at 25 000 and can be as high as 5 million sales loads are usually not required for y shares which allows institutional investors to buy and sell shares with no added commission charges since y shares are not associated with intermediary sales charges they also usually do not pay any distribution fees or 12b 1 fees from the fund s expenses without 12b 1 fees the total expense ratios are lower overall than other share classes in the fund which is another benefit for institutional investors special considerationswhile y shares are typically reserved for institutional investors they may allow investment from retirement plan investors in some cases most mutual funds will have designated retirement share classes with similar benefits to institutional shares funds without retirement share classes may allow pooled fund investments in y shares from retirement plans that collectively seek investment in the fund this can provide a significant benefit to retirement shareholders who would take part in the savings from the share class s lower fees example of y sharesputnam investments is one investment manager that offers y shares across many of its funds as the primary share class for institutional investors the putnam global equity fund provides one example the fund offers a shares b shares c shares m shares r shares r6 shares t shares and y shares the putnam global equity fund s y share class charges no front end or back end sales commissions the share class also charges no 12b 1 fees which helps it to have one of the lowest annual expense ratios in the fund performance for the y shares as of march 31 2022 was also one of the highest in the fund for the last five years at 8 92 1 | |
how much does it cost to buy y shares | many y share classes have no fees for purchasing the shares but charge a management fee y share classes do tend to have a high minimum investment threshold 25 000 or more however | |
why would my advisor change my shares to y shares | advisors may upgrade to y shares if there is a cost savings benefit mutual funds meanwhile may change the share class of an issued fund called a reclassification if certain requirements are met | |
what is y2k | y2k is the shorthand term for the year 2000 y2k was commonly used to refer to a widespread computer programming shortcut that was expected to cause extensive havoc as the year changed from 1999 to 2000 instead of allowing four digits for the year many computer programs only allowed two digits e g 99 instead of 1999 as a result there was immense panic that computers would be unable to operate at the turn of the millennium when the date descended from 99 to 00 understanding y2kin the years and months leading up to the turn of the millennium computer experts and financial analysts feared that the switch from the two digit year 99 to 00 would wreak havoc on computer systems ranging from airline reservations to financial databases to government systems millions of dollars were spent in the lead up to y2k in it and software development to create patches and workarounds to squash the bug while there were a few minor issues once jan 1 2000 arrived there were no massive malfunctions some people attribute the smooth transition to major efforts undertaken by businesses and government organizations to correct the y2k bug in advance others say that the problem was overstated and wouldn t have caused significant problems regardless special considerationsat the time which was the early days of the internet the y2k scare or the millennium bug as it was also called had many plausible reasons for concern for instance for much of financial history financial institutions have not generally been considered cutting edge technology wise knowing most big banks ran on dated computers and technologies it wasn t irrational for depositors to worry the y2k issue would seize the banking system up thereby preventing people from withdrawing money or engaging in important transactions extended to a global scale these worries of an epidemic like panic had international markets holding their breath heading into the turn of the century the research firm gartner estimated that the global costs to fix the bug were expected to be between 300 billion to 600 billion individual companies also offered their estimates of the bug s economic impact on their top line figures for example general motors stated that it would cost 565 million to fix problems arising from the bug citicorp estimated that it would cost 600 million while mci stated that it would take 400 million in response the united states government passed the year 2000 information and readiness disclosure act to prepare for the event and formed a president s council that consisted of senior officials from the administration and officials from agencies like the federal emergency management agency fema the council monitored efforts made by private companies to prepare their systems for the event in actuality the episode came and went with little fanfare | |
what led to y2k | y2k came about largely due to economics at the dawn of the computer age the programs being written required the type of data storage that was extremely costly since not many anticipated the success of this new technology or the speed with which it would take over firms were judicious in their budgets this lack of foresight especially given that the millennium was just about 40 years away led to programmers being forced to using a 2 digit code instead of a 4 digit code to designate the year | |
why was y2k scary | experts feared that the switch from the two digit year 99 to 00 would wreak havoc on computer systems ranging from airline reservations to financial databases to government systems for instance the banking system relied on dated computers and technologies and it wasn t irrational for depositors to worry about being able to withdraw funds or engage in important transactions bankers were worried that interest might be calculated for a thousand years 1000 to 1999 instead of a single day | |
how was y2k avoided | the u s government passed the year 2000 information and readiness disclosure act to prepare for the event and formed a president s council that consisted of senior officials from the administration and officials from agencies like the federal emergency management agency fema to monitor efforts of private companies to prepare their systems for the event the research firm gartner estimated that the global costs to avoid y2k could have been as much as 600 billion | |
what is yacht insurance | yacht insurance is an insurance policy that provides indemnity liability coverage for a sailing vessel it includes liability coverage for bodily injury or damage to the property of others and damage to personal property on the vessel depending on the insurance provider this insurance could also include gas delivery towing and assistance if your yacht gets stranded understanding yacht insurancesome companies specialize in providing coverage for antique and classic boats you can choose between an actual cash value or agreed value policy the former is cheaper but factors in depreciation and market value so your payout will be less 12 some policies include discounts based on your boating education safety features and whether you have a hybrid or electric boat some companies also offer a package deal that decreases the rate on a yacht insurance policy if you purchase additional policies such as for your home or car 3boats are defined as vessels under 197 feet long while ships are 197 feet long or longer there is no agreed upon length for a yacht but they are generally considered to be at least 30 feet long a vessel under 27 feet is considered a pleasure boat 4although there isn t a standard definition of what the size of a yacht is we can see that there is a general agreement within a range with that being said this general range falls within class 2 and class 3 of the federal boat classification system 5for its own purposes the national boat owners association marks the dividing line at 27 feet most yacht coverage is broader and more specialized than pleasure boat coverage because larger vessels travel farther and are exposed to greater risks 2yacht insurance is broader and more specialized than pleasure boat coverage due to the fact that a yacht can sail farther and thus runs greater risks a yacht insurance deductible the amount of money you must pay out of your own pocket before your insurance kicks in is usually a percentage of the insured value a 1 deductible for example means that a boat insured for 100 000 would have a 1 000 deductible most lenders allow a maximum deductible of 2 of the insured value 6generally yacht insurance coverage does not include wear and tear gradual deterioration marine life marring denting scratching animal damage osmosis blistering electrolysis manufacturer s defects defects in design and ice and freezing 7two parts of yacht insurancethere are two principal sections of a yacht insurance policy hull insurance is an all risk direct damage coverage that includes an agreed amount of hull coverage that amount is settled on when the policy is written and in the case of a total loss it will be paid out in full 8 in addition there is replacement cost coverage on partial losses though sails canvas batteries outboards and sometimes outdrives are not include and instead are subject to depreciation 9protection and indemnity p i insurance is the broadest of all liability coverages and because maritime law is particular you will need coverages that are designed for those exposures longshore and harbor workers coverage and jones act coverage for the yacht s crew are included and important because your losses in these areas could run into six figures p i will cover any judgements against you and also pays for your defense in admiralty courts 910 | |
what is the yale school of management | yale school of management yale som is yale university s graduate business school yale school of management offers both mba and ph d level programs and is known for among other things its focus on finance and ethics the school introduced a new kind of integrated curriculum that combines a brief period of foreign study with organizational and employee analysis 1 understanding the yale school of managementyale school of management is located in new haven conn the first class to attend the school arrived in 1976 after receiving a donation to establish the program in 1971 the school s mission is shaped by three main objectives 2 yale school of management programsyale school of management offers several different programs for graduate studies in addition to the standard two year master of business administration mba the school also offers an executive mba program for working students a master of advanced management for graduates of business schools that are members of the global network for advanced management master s degree in asset management master s degree for systemic risk a master s degree for global business and society a ph d program and executive education programs 34567the doctoral program at yale school of management is a full time in residence program intended for students who plan scholarly careers involving research and teaching in management 3yale school of management admission standardsyale school of management is one of the smaller business schools in america with nearly 100 faculty and roughly 350 slots in its mba program 8 admission is competitive around 25 of applicants are accepted for its mba class for the 2021 in coming class a figure which varies somewhat year to year 9 notable yale school of management alumni include jane mendillo d ellen shuman and sandra urie yale school of management tuition and feesfor the academic year 2021 2022 the total tuition and fees are 76 770 tuition at yale school of management is 74 500 there is an additional program fee of 2 270 other expenses are budgeted based on a single student assuming a modest lifestyle and shared housing tuition at yale school of management is slightly higher than at other highly ranked business schools the annual mba tuition at harvard business school is 73 440 excluding fees and living expenses at the university of chicago booth school of business the annual mba tuition is 72 000 also excluding fees and living expenses 1112connection to yale universityyale school of management strives to be the graduate business school most connected to its home university the two schools offer ten joint degree programs 13 nearly 15 of the yale school of management students pursue joint degrees 14 students are also required to fulfill a global studies requirement to graduate this requirement can be filled by taking an international experience course a week long global networks course utilizing a global virtual team a global social entrepreneur course a global social enterprise course or an international exchange with a partner school yale school of management faqsthe median undergraduate gpa for yale school of management s class of 2022 is 3 65 based on a 4 0 grading scale where gpa appears on the transcript 15 according to u s news and world report s 2022 list of best business schools yale s business school is ranked number nine in the u s stanford s university business school is the top ranked business school in the u s followed by the wharton school at the university of pennsylvania and the booth school of business at the university of chicago 16 while the school has different online learning programs for students there is no online only mba degree here s a link to the online programs the school offers yale school of management executive education s collection of online executive programs ranges from courses on corporate sustainability management decision making digital marketing 17 kerwin charles is the indra k nooyi dean of the yale school of management as of july 1 2021 18 the bottom lineyale university s yale school of management offers an mba degree in both full time and executive formats as well as one year master s degree programs in systemic risk global business and society asset management and advanced management the school also offers advanced phd level study in management fields the school is located in new haven conn the program was established in 1971 and the first class to attend the school arrived in 1976 for the academic year 2021 2022 the total tuition and fees are 76 770 tuition at yale school of management is 74 500 there is an additional program fee of 2 270 kerwin k charles is the indra k nooyi dean of the yale school of management and the frederic d wolfe professor of economics policy and management | |
what is a yankee bond | a yankee bond is a debt obligation issued by a foreign entity such as a government or company which is traded in the united states and denominated in u s dollars understanding a yankee bondyankee bonds are governed by the securities act of 1933 which requires the bonds to be registered with the securities and exchange commission sec before being offered for sale yankee bonds are frequently issued in tranches individual portions of a larger debt offering or structured financing arrangement that have differing risk levels interest rates and maturities and offerings may be extremely large as much as 1 billion there are also yankee certificate of deposits cds that are issued in the united states by a branch or agency of a foreign bank advantages of yankee bondsyankee bonds can represent a win win opportunity for both issuers and investors one of the primary potential advantages for a yankee bond issuer is the opportunity to obtain cheaper financing capital at a lower cost if comparable bond rates in the united states are significantly lower than the current rates in a foreign company s own country the size of the u s bond market and the fact u s investors very actively trade it also confers an advantage for the issuer especially if the bond offering is a large one although u s regulatory requirements may initially hamper a foreign issuer in regard to obtaining approval to offer bonds conditions for lending in the united states may still be less stringent overall than those in the issuer s own country allowing the issuer greater flexibility in terms of the offering a major advantage for u s investors in yankee bonds is such bonds frequently offer higher yields than the yields available on comparable or even lower rated bond issues from u s issuers another potential advantage is the fact that yankee bonds offer investors a means of obtaining international diversification in a portfolio of bond investments yankee bonds also offer u s investors an advantage over investing in foreign corporation bond issues made in the foreign company s home country since yankee bonds are denominated in u s dollars the currency risk commonly associated with foreign bond investments is virtually eliminated disadvantages of yankee bondsone of the drawbacks of yankee bonds for issuers is the time involved because of strict u s regulations for the issuing of such bonds it can take more than three months for a yankee bond issue to be approved for sale the approval process includes an evaluation of the issuer s creditworthiness by a debt rating agency such as moody s or standard poor s another consideration is the interest rate environment foreign issuers usually favor issuing yankee bonds when there is a low interest rate environment in the united states since that means the issuer can offer the bond with lower interest payments but should something send interest rates soaring or plummeting in three months it could mess up the carefully calibrated pricing of the yankee bond affecting how well it sells finally a yankee bond can be affected by the economy of its home country so if that country has a shaky economy its price could topple or the issuer could run into problems which could affect its coupon payments and while the yankee bond is issued in dollars it could be vulnerable to some currency risk as well as a nation s economic woes often affect its money s performance in the foreign exchange markets | |
what is a yankee certificate of deposit cd | a yankee certificate of deposit cd is a type of cd that is issued in the united states by a branch of a foreign bank yankee cds are denominated in u s dollars and are used by foreign banks to raise capital from u s investors | |
how yankee cds work | foreign banks operating in the united states often need to access dollars for purposes such as extending credit to u s customers or satisfying u s dollar usd denominated obligations to help raise this usd capital foreign banks sometimes accept deposits from american customers through special cds called yankee bonds like traditional cds yankee cds are savings accounts that pay interest before returning their initial investment at the end of a specified investment period although it is often possible for investors to withdraw their funds before this date doing so would risk incurring an early withdrawal penalty generally speaking cds come with terms ranging between one month and five years with higher interest paid on the accounts with longer maturities aside from the fact that they are offered by foreign banks the other major difference between yankee cds and regular cds is their minimum investment size typically yankee cds have a minimum face value of 100 000 making them appropriate for larger investors moreover yankee cds are only offered for short maturity periods of less than one year because they are not issued by u s based institutions yankee cds are not subject to the protections of the federal deposit insurance corporation fdic and generally require investors to lock in their funds for the entire maturity period real world example of a yankee cdyankee cds are usually issued in new york by foreign banks who have branch offices in the u s they are sold either directly by the foreign banks themselves or indirectly through one or more registered broker dealers the most common countries of origin for foreign banks offering yankee cds are japan canada the united kingdom and countries in western europe these banks typically use the funds raised through yankee cds to extend credit to their u s based corporate customers according to the richmond fed yankee cds were first issued in the early 1970s and initially paid a higher yield than domestic cds foreign banks at the time were not well known so their credit quality was difficult to assess due to different accounting rules and scant financial information 1as investor perception and familiarity with foreign banks improved the premium paid by foreign banks on their yankee cds declined this cost of funds difference was partially offset by the exemption of foreign banks from federal reserve reserve requirements in effect until the international banking act of 1978 2the exemption also aided the establishment of the yankee cd market which grew steadily in the early 1980s in the early 1990s there was rapid growth in yankee cds because reserve requirements on nonpersonal time deposits with maturities of less than 18 months were eliminated in dec 1990 previously there was a 3 federal reserve reserve requirement for foreign banks funding dollar loans to u s borrowers with yankee cds 3 | |
what is a yankee certificate of deposit cd | a yankee certificate of deposit cd is a type of cd that is issued in the united states by a branch of a foreign bank yankee cds are denominated in u s dollars and are used by foreign banks to raise capital from u s investors | |
how yankee cds work | foreign banks operating in the united states often need to access dollars for purposes such as extending credit to u s customers or satisfying u s dollar usd denominated obligations to help raise this usd capital foreign banks sometimes accept deposits from american customers through special cds called yankee bonds like traditional cds yankee cds are savings accounts that pay interest before returning their initial investment at the end of a specified investment period although it is often possible for investors to withdraw their funds before this date doing so would risk incurring an early withdrawal penalty generally speaking cds come with terms ranging between one month and five years with higher interest paid on the accounts with longer maturities aside from the fact that they are offered by foreign banks the other major difference between yankee cds and regular cds is their minimum investment size typically yankee cds have a minimum face value of 100 000 making them appropriate for larger investors moreover yankee cds are only offered for short maturity periods of less than one year because they are not issued by u s based institutions yankee cds are not subject to the protections of the federal deposit insurance corporation fdic and generally require investors to lock in their funds for the entire maturity period real world example of a yankee cdyankee cds are usually issued in new york by foreign banks who have branch offices in the u s they are sold either directly by the foreign banks themselves or indirectly through one or more registered broker dealers the most common countries of origin for foreign banks offering yankee cds are japan canada the united kingdom and countries in western europe these banks typically use the funds raised through yankee cds to extend credit to their u s based corporate customers according to the richmond fed yankee cds were first issued in the early 1970s and initially paid a higher yield than domestic cds foreign banks at the time were not well known so their credit quality was difficult to assess due to different accounting rules and scant financial information 1as investor perception and familiarity with foreign banks improved the premium paid by foreign banks on their yankee cds declined this cost of funds difference was partially offset by the exemption of foreign banks from federal reserve reserve requirements in effect until the international banking act of 1978 2the exemption also aided the establishment of the yankee cd market which grew steadily in the early 1980s in the early 1990s there was rapid growth in yankee cds because reserve requirements on nonpersonal time deposits with maturities of less than 18 months were eliminated in dec 1990 previously there was a 3 federal reserve reserve requirement for foreign banks funding dollar loans to u s borrowers with yankee cds 3 | |
what is the yankee market | yankee market is a slang term for the stock market in the united states yankee market is usually used by non u s residents and refers to the slang term for an american a yankee or yank which itself is sometimes used as a playful though sometimes derogatory reference to u s citizens understanding the term yankee marketthe term yankee market was used in business slang but has become widely accepted much like the bulldog market refers to the u k market and samurai market refers to the market in japan relatedly a yankee bond is one issued by a foreign bank or company but traded in the united states and priced in u s dollars special circumstancesyankee bonds are frequently issued in tranches defined as individual portions of a larger debt offering or financing arrangement tranches can vary with respect to risk levels interest rates and maturities offerings can be quite large rising up to 1 billion there are strict u s regulations for the issuing of these bonds resulting in a slow selling process it can take more than three months for a yankee bond issue to be approved during which time a debt rating agency evaluates the issuer s creditworthiness reverse yankee market and reverse yankee bondsa reverse yankee market and reverse yankee bond refer to u s companies participating in the euro bond market it s increasingly common to see american companies issuing debt in europe the reverse yankee market is reported to have reached 380 billion 1in 2017 the financial times reported on the reverse yankee market as it detailed general electric ge selling an 8 billion bond and gathering 22 billion of orders a deal the financial times calls one of the largest ever deals in the single currency showing the depth of demand for long dated issuance from u s borrowers 2the article describes so called reverse yankee deals becoming increasingly popular illustrated by large american issuers like pfizer and coca cola raising multibillion euro deals in 2015 coca cola raised 8 5 billion across five tranches which at the time was the largest reverse yankee deal the ge sale beat that as the fourth largest euro corporate bond sale ever and arguably worked to strengthen future interest in reverse yankee deals by major u s businesses 2allergan and baxter international the financial times reported were examples of two companies that announced investor meetings in europe ahead of planned bond sales in 2017 bloomberg reported that u s companies in 2017 borrowed 57 billion euros in europe compared with 42 billion euros in that same period of 2016 3companies involved in these reverse yankee deals included heavy hitters such as kimberly clark gm financial nestle at t apple ibm kellogg procter gamble netflix aramark amc entertainment levi strauss and american honda | |
what is a financial yard | the term yard is a financial term meaning one billion the term is derived from the term milliard which is used in some european languages and is equivalent to the number one billion used in american english a yard is equal to 10y 10 to the ninth power or the number one followed by nine zeros which is written out as 1 000 000 000 if someone were to purchase one billion u s dollars they could refer to the purchase as a yard of u s dollars understanding yardthe financial world just like any other industry has its own slang terms including the word yard the term refers to one billion and may offer a concise method of naming the figure it is most often used to avoid any confusion with the words million or trillion when making a trade the term is often used in currency trading different terminology is used throughout the world for identifying large numbers for example one billion can be called one yard one milliard or one thousand million depending on the country the financial world is full of slang that is commonplace in the industry including cable which is used to refer to the currency pairing between the pound and u s dollar and the loonie another name for the canadian dollar which bears a loon on the front the term yard which means one billion is used in the financial world to avoid confusion with similar sounding words such as million or trillion special considerationstraders have had to develop their own terminology or financial slang in order to make trading easier as mentioned above the term yard has been used to mean one billion in order to avoid confusion with other words such as million or trillion that sound similar traders at that time communicated through the open outcry system shouting to one another or using hand signals to transmit information about their buy and sell orders with the advent of technology the trading world began to make the conversion from the open outcry system to electronic trading in fact many of the world s largest exchanges eliminated outcry and adopted a fully integrated electronic trading system including the london stock exchange lse india s bombay stock exchange bse and the toronto stock exchange tsx according to reuters terms like yard and cable may continue to survive but electronic and over the phone trading is leading to the slow death of a lot of financial slang in general 1 because the new roster of traders is educated using modern technology they are not as familiar with the financial lingo that was once popular on trading floors around the world this means the likelihood that they would use this terminology in the industry is remote | |
what is a year end bonus | the term year end bonus refers to a form of compensation paid by employers to their employees in addition to their wages or salaries put simply a year end bonus is a reward that companies pay their workers the amount paid can vary but is usually based on an employee s position and salary it is commonly tied to performance metrics which means it can depend on whether certain milestones are met year end bonuses may be made in different forms including lump sum payments in cash to reward individuals for their hard work and dedication understanding year end bonusescompensation comes in many forms depending on the nature of the work and the type of company employers may offer their employees salaries wages commissions retirement plans health benefits stock options and tips another type of compensation is the year end bonus which may also be called an annual or christmas bonus year end bonuses are offered by companies of different sizes from small businesses to large multinational corporations as noted above it is normally tied to an employee s performance over the calendar or fiscal year so employees who meet their sales quotas or other metrics may qualify for one in some cases anyone who exceeds their goals may be entitled to higher bonuses it isn t uncommon for top executives and employees of financial firms on wall street to receive large bonuses at the end of the year year end bonuses are often paid in cash as lump sums some companies though may choose to compensate their employees in other ways this may include supplemental vacation days gifts or in kind transfers of stock bonuses fluctuate depending on the economy and the year s performance but in most years the amount is substantial some companies may include these bonuses in their employees contracts to encourage consistent results contractual year end bonuses are more often offered to executive management when they are hired or promoted and might not be tied to the company s performance at all in this capacity the bonus can serve as a hiring and retention tool to keep key personnel on board with a company when job openings at rival companies offer higher base salaries if a company misses its targets or otherwise underperforms it is possible that a company will withhold year end bonuses for some if not all individuals on the payroll special considerationscompanies and employees may choose to defer payment of a year end bonus until the next year so rather than receiving it in december an employee may receive their bonus in january or february this option allows workers to push any additional tax burden to the next year so although the employee qualifies for the bonus this year the tax consequences don t apply until they receive the bonus the following year this allows an employee to plan for the windfall at the end of the next year employers remain cautious because of the covid 19 pandemic according to a survey 27 of employers didn t give their employees a year end bonus of those surveyed 81 of the companies paying a bonus said they would keep the amount the same 1 | |
how to use a year end bonus | there are several ways you can choose to use your year end bonuses but before you do it s always a good idea to weigh out the options so you make the right choice | |
what is year over year yoy | year over year yoy sometimes referred to as year on year is a frequently used financial comparison for looking at two or more measurable events on an annualized basis observing yoy performance allows for gauging if a company s financial performance is improving static or worsening for example you may read in financial reports that a particular business reported that its revenues increased for the third quarter on a yoy basis for the last three years investopedia candra huffunderstanding year over year yoy year over year compares a company s financial performance in one period with its numbers for the same period one year earlier this is considered more informative than a month to month comparison which often reflects seasonal trends common yoy comparisons include annual and quarterly as well as monthly performance benefits of year over year yoy yoy measurements facilitate the cross comparison of sets of data for a company s first quarter revenue using yoy data a financial analyst or an investor can compare years of first quarter revenue data and quickly ascertain whether a company s revenue is increasing or decreasing by comparing the same months in different years it is possible to draw accurate comparisons despite the seasonal nature of consumer behavior this yoy comparison is also valuable for investment portfolios investors like to examine yoy performance to see how performance changes over time uses of year over year yoy yoy comparisons are popular when analyzing a company s performance because they help mitigate seasonality a factor that can influence most businesses sales profits and other financial metrics change during different periods of the year because most lines of business have a peak season and a low demand season for example retailers have a peak demand season during the holiday shopping season which falls in the fourth quarter of the year to properly quantify a company s performance it makes sense to compare revenue and profits yoy it s important to compare the fourth quarter performance in one year to the fourth quarter performance in other years suppose an investor looks at a retailer s results in the fourth quarter versus the prior third quarter in that case it might appear that a company is undergoing unprecedented growth when seasonality influences the difference in the results similarly in a comparison of the fourth quarter with the following first quarter there might appear to be a dramatic decline when this could also be a result of seasonality yoy also differs from the term sequential which measures one quarter or month to the previous one and allows investors to see linear growth for instance the number of cell phones a tech company sold in the fourth quarter compared with the third quarter or the number of seats an airline filled in january compared with december example of year over year yoy below is apple s income statement from q2 2024 total net sales for the second quarter were 90 8 billion total net sales for the second quarter of 2023 were 94 8 billion this means that apple s net sales in q2 2024 were down 4 3 year over year yoy 1for q2 2024 apple s net income was 23 6 billion which was a decrease compared to its net income of 24 2 billion in q2 2023 this was a 2 2 decrease year over year 1 | |
what is yoy used for | yoy is used to compare one time period and another one year earlier this allows for an annualized comparison say between third quarter earnings this year versus third quarter earnings the year before it is commonly used to compare a company s growth in profits or revenue and it can also be used to describe yearly changes in an economy s money supply gross domestic product gdp and other economic measurements | |
how is yoy calculated | yoy calculations are straightforward and usually expressed in percentage terms this would involve taking the current year s value dividing it by the prior year s value and subtracting one this year last year 1 you can then multiply this by 100 to get a percentage | |
what s the difference between yoy and ytd | yoy looks at a 12 month change year to date ytd looks at a change relative to the beginning of the year usually jan 1 ytd can provide a running total while yoy can provide a point of comparison | |
what if i am interested in comparisons of less than a year | you can compute month over month or quarter over quarter q q in much the same way as yoy indeed you can choose any time frame you desire the bottom lineyear over year yoy is a useful tool for financial analysts corporations and investors it allows for the comparison of financial figures from one point in time to the same point a year prior it paints a clear picture of performance whether performance is improving worsening or static this informs companies on how their business is operating and if changes need to be made it informs investors if their portfolio needs adjustment and analysts use it to describe the financial health of a company and make future predictions | |
what is year to date | year to date ytd refers to the period beginning on the first day of the current calendar year or fiscal year up to the current date ytd information is useful for analyzing business trends over time or comparing performance data to competitors or peers in the same industry the acronym is often seen in references to investment returns earnings and net pay investopedia matthew collinsunderstanding year to datesomeone who s using ytd for a calendar year reference would be referring to the period from jan 1 of the current year through the current date they would mean the period between the first day of the fiscal year in question and the current date if they were using ytd for a fiscal year reference a fiscal year is a period lasting one year but not necessarily beginning on the first of january it s used by governments corporations and other organizations for accounting and external audit purposes the federal government observes its fiscal year from oct 1 to sept 30 1 microsoft s fiscal year is from july 1 to june 30 2 it s common for nonprofit organizations to have a fiscal year of july 1 to june 30 current ytd financial statements are routinely analyzed against historical ytd financial statements for the equivalent period a three month ytd financial statement would run through sept 30 and would be compared to previous years july through september statements if a company s fiscal year begins on july 1 this comparison can help to identify seasonal trends or abnormalities ytd financial information is useful for management because it s a good way to check in on the financial health of a company on an interim basis rather than waiting until the end of the fiscal or calendar year types of year to dateytd financial information can be created and classified in various ways ytd return refers to the amount of profit that s made by an investment since the first day of the current year investors and analysts use ytd return information to assess the performance of investments and portfolios calculate a ytd return on investment by subtracting its value on the first day of the current year from its current value then divide the difference by the value on the first day and multiply the product by 100 to convert it to a percentage a portfolio s ytd return would be 50 if it was worth 100 000 on jan 1 and it s worth 150 000 on the present date ytd earnings refer to the amount of money an individual has earned from jan 1 to the current date this amount typically appears on an employee s pay stub along with information about medicare and social security withholdings and income tax payments ytd earnings may also describe the amount of money an independent contractor or business has earned since the beginning of the year this amount consists of revenue minus expenses small business owners use ytd earnings to track financial goals and estimate quarterly tax payments net pay is the difference between an employee s earnings and the withholdings from those earnings an employee can calculate net pay by subtracting the tax and other withholdings from their gross pay ytd net pay appears on many paycheck stubs and this figure includes all the money earned since jan 1 of the current year minus all the tax and other benefit amounts withheld month to date vs year to datemonth to date mtd refers to the period between the first day of the current month and the last complete business day before the current date mtd typically doesn t include the current date because business may not have ended for that day mtd refers to the period from aug 1 2024 to aug 20 2024 if today s date is aug 21 2024 this metric is used similarly in ytd metrics business owners investors and individuals use mtd data to analyze their income business earnings and investment returns for the month so far year to date formula and calculationthe specific formula for determining a year to date figure is year to date value as of a specific date value at the start of the year 1 begin aligned text year to date left frac text value as of a specific date text value at the start of the year right 1 end aligned year to date value at the start of the yearvalue as of a specific date 1 multiply the result by 100 to obtain a percentage some ytd calculations can be made with simple addition a business would add up the sales figures for every budget period since the beginning of the fiscal or calendar year if it wanted to calculate its ytd sales you would add up the gross pay from every paycheck since the start of the year if you want to verify your ytd salary the math is more complicated for interest or yield figures which are often represented in terms of annual percentage rates annualizing a yield allows investors to compare returns over different periods it can be hard to determine if your portfolio is on track to beat last year s 8 returns if your portfolio is up 4 and it s now june the first step to annualizing yields is to divide the current value by the initial value at the beginning of the year this gives you a fraction representing ytd growth next raise that fraction to the power of 12 divided by the number of months that have passed subtract 1 and multiply the result by 100 to get a percentage 3suppose your portfolio started the year at 1 000 and it currently has a value of 1 030 on sept 30 divide 1 030 by 1 000 to get 1 03 and raise that to the power of 1 33 12 9 to get 1 04 your portfolio is on track for an annualized 4 growth example of year to date calculationlet s say that you re conducting a periodic review of your investment portfolio you d like to calculate your ytd return to gauge where things stand start by determining the value of your account at the beginning of the year we ll say that figure is 125 000 six months later the value of your portfolio had grown to 137 000 as of the close of markets yesterday that s good news you know that your return is positive but what s the actual ytd figure you can calculate your return using the ytd formula above year to date value as of a specific date value at the start of the year 1year to date 137 000 125 000 1 year to date 1 096 1year to date 0 096 to transform the decimal to a percentage multiply by 100 year to date 9 6 your portfolio has achieved a ytd return of 9 6 in six months | |
what does year to date mean on a pay stub | your ytd figure on a pay stub shows the total of your wages or earnings from the start of the current calendar year up to and including the most recent pay period most pay stubs show a running total of ytd earnings that includes gross wages net pay or both they may also provide a ytd tally of your fica taxes income taxes and other deductions | |
how do you calculate year to date returns | consider an investor who bought shares in a company on january 1 at 200 per share they re worth 202 in march year to date equals 202 200 1 or 01 multiply this by 100 to arrive at 1 | |
what is month to date | month to date is used to measure earnings return and income it refers to the first of the month through the last business day before the current day because the current business day may still be in progress the bottom lineyear to date represents one way to measure the return provided by a group of securities or an index it can be a metric for a company s financial progress a company can analyze performance trends throughout the year rather than wait for end of year figures ytd is a simple way to assess progress over time | |
what is the yearly probability of dying | yearly probability of dying is a statistical estimate of the likelihood of a person dying within a year usually based on their age sex and sometimes other factors it is widely used in health studies by the government and by the insurance industry in setting rates understanding the yearly probability of dyingestimates of yearly probability of dying are based on mortality tables also known as actuarial or life tables which reflect the percentage of people in a particular group who are statistically likely to die in a particular time period those percentages are derived by dividing the number of deaths in that group by the number of people who were alive at the beginning of the period for example the mortality tables used by the u s social security administration estimate that a 30 year old male has a 0 23 chance of dying within one year for a 60 year old the odds rise to 1 3 while a 119 year old which is as high as the table goes has a 97 chance of mortality within a year 1mortality tables and yearly probability of dying calculations can add other variables as well with smoking vs nonsmoking being a major one for life insurance and annuity contract purposes they are also calculated using other variables such as education income and the specific cause of death depending on what the researchers are studying one widely used set of mortality tables particularly in the insurance industry is the commissioners standard ordinary cso mortality tables adopted by the national association of insurance commissioners the cso tables differentiate mortality risk by age sex and tobacco use 2the probability of dying is frequently calculated using longer or shorter time frames than one year for example a common measure of child health in a given country is the under 5 mortality rate u5mr which estimates the probability of a child dying between birth and age 5 3 maternal mortality rates are based on a period equal to the length of time the woman is pregnant or within 42 days of the end of pregnancy based on the world health organization s definition 4laura porter investopedia | |
what is the yearly probability of living | the yearly probability of living is basically the flip side of the yearly probability of dying also based on mortality tables it is an estimate of the likelihood of an individual still being alive a year into the future based on their age sex and sometimes other factors like the yearly probability of dying it is widely used in the insurance industry while a person s yearly probability of dying rises as they age their yearly probability of living goes in the opposite direction | |
what is the mortality rate | the mortality rate represents the number of deaths as a percentage of a total population in a given period often one year the most basic mortality rate referred to as the crude mortality rate among statisticians doesn t differentiate between men and women or according to other factors more specialized types of mortality rates include age specific mortality rates sex specific mortality rates race specific mortality rates and cause specific mortality rates among others | |
what is life expectancy | life expectancy is another use of mortality data an estimate of how many more years a person with certain characteristics current age sex and so forth is likely to live or what age they are likely to attain before they die life expectancy estimates have many uses in the insurance industry and elsewhere for example the internal revenue service publishes life expectancy tables that taxpayers must use to determine their annual required minimum distributions rmds from their retirement accounts in its most recent tables for example a newborn has a life expectancy of another 84 6 years while someone who is 120 or older the top limit of the table has a life expectancy of one more year 5the bottom linethe yearly probability of dying is a statistical estimate of the likelihood of a person dying within a one year period it can cover an entire population or break down death rates according to age sex and other factors such as tobacco use the yearly probability of dying is widely used in health studies by the government and by the insurance industry other mortality related statistics can use time periods shorter or longer than a single year | |
what is the yearly probability of living | the yearly probability of living is a statistical concept that measures the likelihood that a given person or group of people will survive for one more year it is widely used in the insurance industry to underwrite life insurance contracts generally speaking older individuals will have a lower yearly probability of living and will therefore likely be charged higher insurance premiums understanding the yearly probability of livingin order to be profitable insurance companies must use all available data to estimate the likelihood that their policyholders will file insurance claims for life insurance policies one of the most important types of data consists of mortality tables also known as life tables these important resources show the rate of death at each age expressed in terms of the number of deaths per thousand by studying these tables insurers can calculate the yearly probability of living corresponding to their policyholders setting their insurance premiums accordingly in essence the data shown in a mortality table is determined by dividing the number of people alive at the end of a given year by the number of people alive at the beginning of that same year depending on the mortality table in question the data may reflect a broad population such as for the united states as a whole or it might reflect a specific subset of that population such as those aged 70 or older or those possessing certain pre existing illnesses for insurance purposes life insurance companies will select the most relevant data possible when underwriting their insurance products a life insurance product marketed to senior citizens therefore will be underwritten using the yearly probability of living for that age cohort for many people it can be uncomfortable to consider statistics such as the yearly probability of living because it forces us to reflect on our own mortality this is especially true considering that when plotted over time the yearly probability of living declines continuously as we age eventually reaching 0 from a financial perspective however this type of data is impossible to avoid because it is critical in evaluating risk whereas insurers use this data to calculate the likelihood of insurance claims and set their premiums accordingly policyholders must also consider them in order to determine whether they are receiving a fair price on their life insurance real world example of the yearly probability of livingin addition to age other factors that are often considered when calculating these figures include the population s pre existing health conditions nationality gender ethnicity and economic status these factors are considered statistically relevant because they have been shown to correlate with different life expectancy outcomes for instance women worldwide have been shown to have a life expectancy roughly 7 higher than men globally women live for roughly 75 years on average whereas men live for about 70 years there is also considerable difference between nations for example canadians have an average life expectancy of just under 82 years whereas americans live for approximately 79 years on average in some cases the difference between countries yearly probability of living can be very extreme whereas citizens of japan have an average life expectancy of 84 years the citizens of the central african republic have an average life expectancy of only 53 years 1 | |
what is the yearly rate of return method | the yearly rate of return method commonly referred to as the annual percentage rate is the amount earned on a fund throughout an entire year the yearly rate of return is calculated by taking the amount of money gained or lost at the end of the year and dividing it by the initial investment at the beginning of the year this method is also referred to as the annual rate of return or the nominal annual rate the formula for yearly rate of return yearly rate of return eyp byp byp 100 where eyp end of year price byp beginning of year price begin aligned text yearly rate of return big frac text eyp text byp text byp big times 100 textbf where text eyp text end of year price text byp text beginning of year price end aligned yearly rate of return bypeyp byp 100where eyp end of year pricebyp beginning of year price example of yearly rate of return method calculationif a stock begins the year at 25 00 per share and ends the year with a market price of 45 00 a share this stock would have an annual or yearly rate of return of 80 00 first we subtract the end of year price from the beginning price which equals 45 25 or 20 next we divide by the beginning price or 20 25 equals 80 lastly to arrive at a percentage 80 is multiplied by 100 in order to arrive at a percentage and the rate of return 80 00 it should be noted that this would technically be called capital appreciation which is only one source of an equity security s return the other component would be any dividend yield for instance if the stock in the earlier example paid 2 in dividends the rate of return would be 2 greater or using the same calculation roughly 88 00 over the one year period as a measure of return the yearly rate of return is rather limiting because it delivers only a percentage increase over a single one year period by not taking into consideration the potential effects of compounding over many years it s limited by not including a growth component but as a single period rate it does serve its purpose other return measuresother common return measures which may be an extension of the basic return method include adjusting for discrete or continuous time periods which is helpful for more accurate compounding calculations over longer time periods and in certain financial market applications asset managers commonly use money weighted and time weighted rates of return to measure performance or the rate of return on an investment portfolio while money weighted rates of return focus on cash flows the time weighted rate of return looks at the compound rate of growth of the portfolio in an effort to be more transparent with investors particularly retail measuring and disseminating investment performance has become its niche within capital markets the cfa institute a worldwide leader in the advancement of financial analysis now offers a professional certificate in investment performance measurement cipm designation according to the cipm association the cipm program was developed by the cfa institute as a specialty credentialing program that develops and recognizes the performance evaluation and presentation expertise of investment professionals who pursue excellence with a passion | |
what is a yearly renewable term yrt | yearly renewable term is a one year temporary life insurance policy that automatically continues each year at the same death benefit when someone buys a yrt insurance policy the premium quoted is for one year of coverage based on the insured s current age premiums then increase annually to cover the increased risk of death as the insured ages while keeping their policy in force understanding yearly renewable terms yrts yearly renewable term life insurance or yrt provides one year of insurance that pays a tax free death benefit to the policy s beneficiaries if the insured dies during that 12 month period each year unless the policy owner cancels the coverage or stops paying premiums the yrt renews at the same death benefit but charges a higher premium that reflects the insured s higher age this type of life insurance is also called increasing premium term insurance or annual renewal term insurance 1actuaries at insurance companies determine what premium to charge for a renewable term policy based on different risk variables using specific formulas that consider age health and other factors actuaries can predict the likelihood a policyholder will die at a given age renewable term policies allow the policyholder to renew coverage each year without additional medical underwriting over a given period of time yrt essentially actually functions as a series of one year term policies that levy a new premium each year based on the insured s current age yrt policies tend to be attractive to young insurance seekers who want to start out with a low cost flexible premium to meet their current needs yrts also fill niche short term demands such as for those awaiting insurance coverage while changing jobs people who recently quit smoking those with short term medical conditions and others who might only need one to two years of coverage the primary drawback of yearly renewable term life insurance is that if a policyholder renews for many years they could end up paying more in premiums than if they d started out buying a level term life or permanent life insurance policy if someone buys a yrt policy and later realizes their coverage needs will last longer the insurance company may let a policyholder convert the policy to whole life insurance without taking another medical exam 2 | |
why choose a yearly renewable term | policyholders with a yearly renewable term life insurance policy can lock in a length of time during which they will remain insurable during this period the policy can be renewed without the need for a medical exam renewability rules vary by state and insurer but it is generally permissible up to a certain age for example new york doesn t allow you to renew past age 80 as the cost would be too high to be worth it 3the policyholder s age is a major factor in determining how premiums are priced so yrts are particularly attractive to adults at lower ages a young insured person s premiums start lower and generally increase with age that s because the older you get the more costly and risky it becomes to insure you most policies come with a schedule of premiums this is a chart that outlines the maximum amount you ll have to pay each year premiums are billed for this exact amount when the policy is renewed while the premiums usually increase the death benefit stays the same | |
why might you be interested in yearly renewable term life insurance | yrts offer flexible low cost coverage that appeals to those who only need insurance for a short period of time policyholders lock in a length of time during which they remain insurable during this time the policy can be renewed without the need for a medical exam | |
what is the main drawback of yrt | if a policyholder renews for many years they could end up paying more in total premiums than if they d simply bought a level term life or permanent life insurance policy however you may have the option to covert the yrt to a level premium term or whole life policy without additional medical exams or underwriting | |
how do yrt premiums differ from other types of insurance | yearly renewable term provides coverage for one year at a time with premiums rising annually based on the insured s current age other policies do not increase the premium as frequently a 10 year renewable term policy for example carries the same premium through its 10 year term and then can be renewed with new premiums based on your older age 4 whole life policies generally charge a set premium throughout the life of the policy that never increases the bottom lineyearly renewable term insurance can be a reasonable choice when you are a young adult or recognize the need for temporary insurance to address a short term financial risk however as years pass and you renew the policy your premiums will rise in parallel with your age consult a life insurance agent to help determine whether yrt is a good solution for your particular situation or if you d be better with a policy that doesn t increase the premium as frequently | |
what is the yearly renewable term plan of reinsurance | the yearly renewable term plan of reinsurance is a type of life reinsurance where mortality risks of an insurance company are transferred to a reinsurer through a process referred to as cession 1in the yearly renewable term plan of reinsurance the primary insurer the ceding company yields to a reinsurer its net amount at risk for the amount that is greater than the retention limit on a life insurance policy this plan is a reinsurance instantiation of a yearly renewable term yrt which consists of one year term policies that are renewed annually understanding the yearly renewable term plan of reinsurancereinsurance allows insurance companies to reduce the financial risks associated with insurance claims by spreading some of the risk to another institution 2 therefore a yearly renewable term plan of reinsurance allows the primary insurance company to spread some of the risk involved in a life insurance policy to another institution 1the amount transferred from the primary insurer to the reinsurer is the net amount at risk which is the difference between the face value and the acceptable retention limit determined by the ceding insurance company for example if a policy s death benefit is 200 000 and the ceding company determines the retention limit to be 105 000 then the net amount at risk is equal to 95 000 if the insured dies the reinsurance pays the portion of the death benefit that is equal to the net amount of risk in this case the amount above and beyond 105 000 | |
when setting up a reinsurance agreement the ceding company will prepare a schedule of the net amount at risk for each policy year the net amount at risk on a life insurance policy decreases over time as the insured pays premiums which adds to its accrued cash value | for example consider a whole life insurance policy issued for a face value of 100 000 at the time of issue the entire 100 000 is at risk but as its cash value accumulates it functions as a reserve account which reduces the net amount at risk for the insurance company therefore if the cash value of the insurance policy rises to 60 000 by its 30th year the net amount at risk is then 40 000 once the ceding company calculates the net amount at risk each year the reinsurer develops a schedule of yearly renewable term premiums for reinsurance based on this schedule the reinsurance premiums paid by the ceding company vary based on the policyholder s age plan and policy year 1 the premiums are renewed yearly under the renewable term reinsurance policy if a claim is filed the reinsurer would remit payment for the assumed portion of the policy s net amount at risk | |
how yearly renewable term reinsurance is used | yearly renewable term yrt reinsurance is typically used to reinsure traditional whole life insurance and universal life insurance term insurance wasn t always reinsured on a yrt basis this was so because coinsurance made for a better match of reinsurance costs with premiums received from the policyholder on level premium term products it also passed the risk of the adequacy rates along to the reinsurer however as alternative capital solutions have become more popular yrt became a more popular method of reinsuring term insurance as well yrt is usually the best choice when the goal is to transfer mortality risk because a policy is large or because of concerns over claim frequency yrt is also simple to administer and popular in situations where the anticipated number of reinsurance cessions is low yrt is also good for reinsuring disability income long term care and critical illness risks however it does not work as well for reinsurance of annuities since yrt reinsurance only involves a limited amount of investment risk little persistency risk no cash surrender risk and little or no surplus strain reinsurers may have a lower profit objective for yrt reinsurance yrt can thus usually be had at a lower effective cost than either coinsurance or modified coinsurance as long as annual premiums are paid the reserve credit is equal to the unearned portion of the net premium of a one year term insurance benefit yearly renewable term insurance normally does not provide reinsurance ceded reserve credit for deficiency reserves | |
what is a years certain annuity | a years certain annuity is a retirement income product that pays the holder a continuous periodic income generally monthly for a specified number of years like all annuities it is used to provide a steady income during retirement however what makes a years certain annuity unique is that it provides that income for a predetermined length of time regardless of how long the annuitant lives this differs from a life annuity which provides payouts for the remainder of the annuitant s life and in certain cases the life of the annuitant s spouse a years certain annuity may also be referred to as a period certain annuity annuity certain fixed period annuity or a guaranteed term or guaranteed period annuity | |
how a years certain annuity works | for review an annuity is a financial product that is usually issued by an insurance or financial services company that pays the recipient called the annuitant a stream of payments over a period of time typically retirees use annuities to create a stable income stream the accumulation phase is when the annuity is being funded by the individual and payouts have to yet to occur the annuitization phase is when the payouts begin and the length of time in which the payouts are made can vary depending on the type of annuity purchased some annuities make payments for a preset number of years while others pay the recipient for as many years as the person remains living a years certain annuity typically involves larger monthly payouts than a life annuity or an immediate annuity since it pays out over a clearly defined period of time rather than until the death of the annuitant during the period specified by the annuity owner payments are made to the annuity owner until the period ends should the annuitant die before the period ends their beneficiary will receive the balance of payments until the period reaches its expiration for example if the annuity buyer chose a years certain annuity with a 10 year period but they died in year eight their beneficiary would receive payments for the remaining two years if the annuitant were to die after the predetermined 10 year period ended then no additional payment would be due to a beneficiary given the specialized nature of years certain annuities they are used less frequently than life annuities the period lengths for a years certain annuity can range from five to 30 years years certain annuity is it right for you given their unique role in retirement income planning a years certain annuity has a narrow sweet spot of usefulness as a result it may be more appealing to an individual who will have another source of income during retirement such as another annuity or other retirement plan a years certain annuity would be risky if it were the only retirement income because the annuitant could outlive the payment period and be forced to spend the remaining retirement years on a reduced income a years certain annuity also might be used to cover a short period of time such as the gap between retirement and the age at which full social security benefits may be claimed such a use would generate a higher income payment than a life annuity which is riskier for the annuity writer because it continues paying benefits until death | |
what is year s maximum pensionable earnings ympe | the canadian government sets the year s maximum pensionable earnings ympe figure the ympe determines the maximum amount on which to base contributions to the canada or quebec pension plan c qpp the ympe specifies the earnings amount that can be used in calculating pension contributions for each year 12understanding year s maximum pensionable earnings ympe the canada pension plan cpp determines the maximum earnings amount for which contributions to the canada pension plan can be made according to the government of canada the maximum pensionable earnings under the canada pension plan cpp for 2022 is 64 900 up from 61 600 in 2021 contributors who earn more than 64 900 in 2022 cannot make additional contributions to the cpp 3beginning in 2024 a separate contribution rate will be implemented for earnings above the ympe expected to be 4 each for employers and employees 5year s maximum pensionable earnings and cpp contributionsthe canada pension plan is similar to the social security program in the united states it provides workers with a series of monthly payments in retirement 6 the size of those payments depends on an individual s earnings during their working years 4on june 20 2016 canada s ministers of finance agreed to augment the cpp the deal increased how much working canadians would receive from the cpp from one quarter of the employees eligible earnings to one third with a boost to the earnings limit changes will be phased in gradually over seven years from 2019 to 2025 so that the impact is measured and piecemeal 5the enhancement has the following features the maximum pensionable earnings under the canada pension plan cpp for 2022 3the higher contribution rate on earnings below the ympe 64 900 in 2022 will be phased in over the first five years in 2023 the cpp contribution rate as estimated by the department of finance canada will be one percentage point higher for both employers and employees on earnings up to the ympe 35in 2024 a separate contribution rate expected to be 4 each for employers and employees will be implemented for earnings above the ympe at that time 5 | |
what is a yellow knight | a yellow knight is a company that was orchestrating a hostile takeover attempt but then backs out of it and proposes a merger of equals with the target company instead understanding a yellow knightvarious colored knights are used to identify the nature of a takeover or potential takeover the process where a company tables an offer to assume control of or acquire another yellow knights are the ones that start out aggressively seeking to purchase a company against its management s wishes and then experience a change of heart back down and propose joining forces in a merger instead yellow knights are a case of if you can t beat them join them they might have any number of reasons for backing out of the takeover attempt often they simply realize that the target company is going to cost more and or has better takeover defenses than they thought and that they need to change strategy a stern rejection might leave the yellow predator in a weak bargaining position and lead it to conclude that a friendly merger is the only reasonable option it has left on the table to get hold of the target s assets in a complete u turn the yellow knight goes from attempting to bully the target into submission and swallow it up to proposing that they team up together as an equal force | |
why are these types of companies called yellow knights because yellow is a color associated among other things with cowardice and deceit | the term yellow knight is derogatory as it implies that the hostile bidder got cold feet and chickened out of the takeover attempt leaving it in a weak bargaining position other types of knightsin mergers and acquisitions m a the buying company may be described as a knight of any one of four different colors other than yellow knights there are black knights make unwelcome hostile takeover bids and unlike yellow knights stand their ground these types of predators are the source of nightmares for target company management as they bully their way into power and usually have goals that deviate from what the current bosses are trying to achieve the opposite of black knights white knights are the friendly forces tasked with rescuing the target from the clutches of another prospective buyer with intentions to bleed it dry to make a quick profit often company officials will seek out a white knight to preserve its core business or to negotiate better takeover terms the white knight might agree to play this role in exchange for some incentives such as paying a smaller premium to take control than otherwise would be required under competitive bid conditions grey knights as their color suggests sit somewhere between white and black knights though not as desirable as the former they are at least viewed as a more appealing option than the latter gray knights capitalize on the fact that they are perceived as a friendlier alternative to a hostile black knight and use that as a negotiating chip to get a more favorable deal when a persistent unwanted predator comes calling | |
what are yellow sheets | yellow sheets are bulletins for bond traders which contain information for corporate bonds listed on the over the counter otc market the sheets contain data on each bond s yield volume high low closing and bid ask spread yellow sheets are published by the otc markets group formerly called the national quotation bureau nqb the company also publishes pink sheets with the equivalent data on stocks that trade over the counter both bulletins have been distributed electronically in real time since 1999 understanding yellow sheetsyellow sheets provide information about bonds issued by companies that are not listed on a national exchange these non listed companies may be small and little known or still in the process of establishing a business many could not meet the requirements for listing on the public exchanges the otc market is a decentralized system for trading securities dealers on the otc market do not do business from a single physical location or a centralized market the yellow sheets provide contact information for the brokerages that make a market for these bonds yellow sheet bonds are traded by this network of market makers through a closed network that can be accessed in hard copy or online by subscribers if a subscriber wants to purchase a particular bond they may use the contact information in the yellow sheets to contact the appropriate brokerage yellow sheet bondsbonds listed in the yellow sheets are generally considered to be riskier than other fixed income securities the companies issuing these bonds are not listed on any public u s stock exchange and therefore are not subject to the stringent government regulation and publication requirements of listed public companies some well established foreign companies list in the u s through the over the counter markets often as american depositary receipts adrs the bid ask spread is understandably wider for bonds listed on yellow sheets to compensate investors for the risks involved in these entities the main risk is that the company will fail and default on the bonds there also is added liquidity risk there may be little or no market for the bond if the investor wishes to sell it yellow sheets and the otc markets groupthe national quotation bureau nqb was established in 1913 to provide investors with information regarding otc stocks and bonds in its early years the nqb published information on paper of different colors and the bulletins soon carried the same name as the paper color stock quotes appeared on the pink sheets and bond quotes were published on the yellow sheets in 1963 the nqb was sold to commerce clearing house in 1999 the nqb transitioned from printing its famous paper bulletins to operating as a primarily electronic operation the nqb has since changed its name to otc markets group | |
what is a yen etf | the term yen etf refers to an exchange traded fund etf that tracks the relative value of the japanese yen jpy in the foreign exchange forex market this is done against a single currency or against a basket of other currencies yen etfs invest primarily in yen backed assets including short term debt instruments and bonds or simply hold the spot currency in interest bearing accounts investing in a yen etf gives investors exposure and access to the yen without the need for forex accounts | |
how yen etfs work | buying and selling foreign currencies was traditionally a complicated process that involved opening up a foreign exchange account it was a privilege generally reserved for experienced traders with expert knowledge but etfs helped change that making the forex market more accessible to the average investor currency etfs are pre packaged investments tasked with tracking specific currencies in the same way that regular etfs seek to replicate the performance of an index like stocks these vehicles trade on a stock exchange and their prices fluctuate throughout the day as traders buy and sell them yen etfs track the performance of japan s currency relative to a single currency like the u s dollar or euro or against a basket of currencies like other currency etfs these investments give investors easy and affordable access to trade currencies during the trading day they also allow investors to diversify their portfolios and can be used to benefit from arbitrage opportunities or to hedge against major economic events 12the portfolios of yen etfs usually include yen denominated futures contracts debt securities money market funds and cash deposits these funds generate income for investors through the performance of the yen against other currencies as well as through interest generated by some securities in the portfolio some yen etfs match the current income earned on the yen assets with a dividend yield others use that income to pay the expenses of managing the etf there are three jpy etfs that trade in the united states as per vettafi formerly etf database 3special considerationsinvestors who hold yen etfs or any other currency etf for that matter should keep tabs on all major economic data that affect their investments this includes the release of gross domestic product gdp retail sales industrial production inflation trade balances employment figures interest rates including scheduled meetings of the central bank and the daily news flow when investing in currencies interest rates inflation and the country s equity market performance should also be taken into account when evaluating the relative attractiveness of a foreign currency 42 when it comes to japan and yen traders very low inflation and low interest rates make the currency historically attractive as a carry trade 5 these low interest rates make it relatively cheap to borrow in yen to fund risk taking in other currencies that carry higher interest rates the tankan survey is also something that investors may want to consider tankan which is an economic survey of japanese businesses is published by the bank of japan boj every quarter it is used to formulate monetary policy and as a result often moves trading in japanese stock and currency 6most of the movement in currency markets is dictated by interest rates inflation a country s economic conditions and its political stability advantages and disadvantages of yen etfsthere are several obvious benefits and drawbacks to investing in yen etfs some of which also apply to other currency etfs as well investing in foreign currencies enables investors to protect themselves in case their own currency declines in value over the years many have opted for the yen which is the third most widely traded currency globally behind the u s dollar and the euro 7 it is also the most widely traded currency in asia 8the yen is sometimes used to provide diversification as it frequently trades inversely to other major currencies in relation to the u s dollar the currency is often used as a reserve currency in international transactions and has even developed a reputation as a safe haven 910another factor to consider is that japan is the world s largest creditor 11 there s also a popular belief among traders that investors there tend to dump foreign holdings and bring their money back home in times of hardship bolstering demand for the yen and subsequently its valuation some investors consider currency etfs risky that s because macroeconomic events affect currency values around the world even in stable nations such as japan unpredictable natural disasters can also have a big impact an example being the fukushima disaster in 2011 which caused a surge in the value of the yen followed by a recession 12a handful of analysts have questioned the japanese yen s safe haven status pointing to the following issues the yen has also lost some of its luster as a popular carry trade as low interest rates become commonplace among major economies these observations serve as a reminder that forex trading is not a market for the unprepared traders must be knowledgeable about major foreign currencies and stay abreast of not only the current economic stats for a country but also the underpinnings of the respective economies and the special factors that can influence the currencies such as commodity movement or interest rate changes protects against declines in the home currencyallows investors to diversifyjapan is world s largest creditoryen is susceptible to macroeconomic risksquestionable safe haven statuslost luster as popular carry tradeexamples of yen etfsthe most popular yen etf is the invesco currencyshares japanese yen trust fxy with 279 2 million in assets under management aum as of december 2023 fxy was launched in february 2007 and seeks to mirror the price and performance of the yen relative to the usd it does this by holding yen on deposit the fund has an expense ratio of 0 40 13investors looking to add yen etfs to their portfolios have a couple of other options too alternatives include the proshares ultra yen etf ycl and proshares ultrashort yen etf ycs one thing to note though is that these two are leveraged etfs with the latter being an inverse etf 1415 | |
how can i invest in yen | as an ordinary investor japanese yen etfs are the easiest way to gain access to the yen | |
what is the main etf that trades the japanese yen | the invesco currencyshares japanese yen trust fxy is the most common yen etf which holds physical yen in its account 13 proshares also offers two yen etfs the proshares ultra yen etf ycl and proshares ultrashort yen etf ycs these two options though are levered ycl provides 2x long exposure and the ycs provides 2x inverse exposure to the yen 1514 | |
how do i invest in the nikkei | american investors can invest in the nikkei 225 index japan s primary equity index via an etf these include | |
what is yield | the yield of a stock bond or other asset is the amount of money its investors are paid an investment s yield includes the interest it earns or the dividends paid to investors yield is expressed as a percentage based on the invested amount the current market value or the face value of the security for example microsoft corp msft announced on march 12 2024 that it would pay a quarterly dividend of 0 75 cents per share on june 13 2024 that means the stock s yield is 0 75 owners of the stock s shares will be paid 73 cents for every 100 shares they own 1note that dividend yield is not the same as total return which reflects any increase in the market value of the asset as well as the dividend payment if an owner receives the microsoft dividend on june 13 and sells the shares the next day the total return or the investor s total yield for microsoft stock would include any increase in the value of the stock as well as the dividend payment investopedia ellen lindnerformula for yieldyield is a measure of the profit that an investor will be paid for investing in a stock or a bond it is usually computed on an annual basis although it may be paid quarterly or monthly the gross yield is the return on the investment before taxes or other expenses yield or net yield should not be confused with total return which is a more comprehensive measure of return on investment net yield is calculated as for example the gains and returns on stock investments can come in two forms first it can reflect a price increase such as occurs when an investor purchases a stock at 100 per share and after a year sells it for 120 second the stock may pay a dividend say 2 per share during the year the yield would be the appreciation in the share price plus any dividends paid divided by the original price of the stock the yield for the example would be | |
what yield can tell you | a higher yield value indicates that an investor is getting more cash flow from holding an investment but it s not that straightforward since dividends are paid from a company s profits higher dividend payouts should mean the company s earnings are increasing which could lead the stock s market price to rise but a higher yield in a company s stock dividend may suggest that the company s management is compensating for a falling or stagnant market value of the stock in fact the higher yield may indicate that the stock value used in the formula had declined similarly in bonds a higher than average yield in a bond indicates a higher than average degree of risk attached to the investment the company or government body issuing the bond has to pay higher interest to attract investors types of yieldsyields on investments vary based on the type of security the duration of investment and the return amount for stock based investments two types of yields are popularly used when calculated based on the purchase price the yield is called yield on cost yoc or cost yield and is calculated as for example if an investor realized a profit of 20 120 100 resulting from price rise and also gained 2 from a dividend paid by the company therefore the cost yield comes to 20 2 100 0 22 or 22 however many investors may like to calculate the yield based on the current market price instead of the purchase price this yield is referred to as the current yield and is calculated as for example the current yield comes to 20 2 120 0 1833 or 18 33 | |
when a company s stock price increases the current yield goes down because of the inverse relationship between yield and stock price | the yield on bonds that pay annual interest can be calculated in a straightforward manner called the nominal yield which is calculated as for example if there is a treasury bond with a face value of 1 000 that matures in one year and pays 5 annual interest its yield is calculated as 50 1 000 0 05 or 5 however the yield of a floating interest rate bond which pays a variable interest over its tenure will change over the life of the bond depending upon the applicable interest rate at different terms if there is a bond that pays interest based on the 10 year treasury yield 2 its applicable interest will be 3 when the 10 year treasury yield is 1 and will change to 4 if the 10 year treasury yield increases to 2 after a few months the interest earned on an index linked bond which has its interest payments adjusted for an index such as the consumer price index cpi inflation index will change as the fluctuations in the value of the index yield to maturity ytm is a measure of the total return expected on a bond each year if the bond is held until maturity it differs from nominal yield which is usually calculated on a per year basis and is subject to change with each passing year ytm is the average yield expected per year and the value is expected to remain constant throughout the holding period until the maturity of the bond the yield to worst ytw is a measure of the lowest potential yield that can be received on a bond without the possibility of the issuer defaulting ytw indicates the worst case scenario on the bond by calculating the return that would be received if the issuer uses provisions including prepayments call back or sinking funds this yield forms an important risk measure and ensures that certain income requirements will still be met even in the worst scenarios the yield to call ytc is a measure linked to a callable bond a type of bond that can be redeemed by the issuer prior to its maturity ytc refers to the bond s yield at the time of its call date this value is determined by the bond s interest payments its market price and the duration until the call date as that period defines the interest amount municipal bonds which are bonds issued by a state municipality or county to finance its capital expenditures and are mostly non taxable also have a tax equivalent yield tey 2tey is the pretax yield that a taxable bond needs to have for its yield to be the same as that of a tax free municipal bond and it is determined by the investor s tax bracket 3there are many variations for calculating the different kinds of yields and some liberty is enjoyed by the companies issuers and fund managers to calculate report and advertise the yield value according to their own conventions regulators like the securities and exchange commission sec have introduced a standard measure for yield calculation called the sec yield the sec yield is calculated after taking into consideration the fees associated with the fund 4mutual fund yield is used to represent the net income return of a fund and is calculated by dividing the annual income distribution payment by the value of a mutual fund s shares it includes the income received through dividends and interest that was earned by the fund s portfolio during the given year since mutual fund valuations change every day based on their calculated net asset value the yields are also calculated and vary with the fund s market value each day along with investments yield can also be calculated on any business venture the calculation retains the form of how much return is generated on the invested capital | |
what does yield represent | yield represents the cash flow that is returned to the investor typically expressed on an annual basis it applies to various bonds stocks and funds and is presented as a percentage of a security s value key components that influence a security s yield include dividends or the price movements of a security | |
how is yield calculated | to calculate yield a security s net realized return is divided by the principal amount there are different ways to arrive at a security s yield depending on the type of asset and the type of yield | |
what is an example of yield | as one measure for assessing risk consider an investor who wants to calculate the yield to worst ytw on a callable bond essentially this measures the lowest possible yield if the issuer opts to call the bond earlier than its maturity date the investor would find the bond s earliest callable date the date that the issuer must repay the principal and stop interest payments after determining this date the investor would calculate the ytw for the bond since the yield to worst is the return for a shorter time period it will indicate a lower return than the yield to maturity the bottom linethe yield of an asset is the amount of cash that an investor will receive in return for buying and holding an investment this is usually expressed as an annual percentage rate of return in stocks the yield is the percentage of a company s profits that is returned to shareholders in the form of dividends in bonds yield is the percentage in interest paid to the bondholders | |
what is yield based option | a yield based option allows investors to buy or sell calls and puts on the yield of a security rather than its price understanding yield based optionsa yield based option is a contract that gives the buyer the right but not the obligation to purchase or sell at the underlying value which is equal to 10 times the yield yields are expressed as percentage rates and the underlying values for these options contracts are 10 times their yields for example a treasury bond with a yield of 1 6 would have a yield based option with an underlying value of 16 yield based options are settled in cash and they are also called interest rate options a yield based call buyer expects interest rates to go up while a yield based put buyer expects interest rates to go down suppose the interest rate of the underlying debt security rises above the strike rate of a yield based call option in that case the call is in the money for a yield based put the option is in the money when the interest rate falls below the strike rate however yield based option buyers must also pay option premiums when yields increase yield based call premiums increase and yield based put options will lose value yield based options are european options which means that they can only be exercised on the expiration date on the other hand american options can be exercised any time up to the contract s expiration date given that these options are cash settled the writer of the call will simply deliver cash to the buyer that exercises the rights provided by the option the cash amount paid is the difference between the actual yield and the strike yield types of yield based optionssome of the best known yield based options follow the yields of the most recently issued 13 week treasury bills five year treasury notes 10 year treasury notes and 30 year treasury bonds 1 benefits of yield based optionsyield based options are extremely useful for hedging portfolios and profiting in a rising interest rate environment yield based options are one of the few ways to make money when interest rates go up and we will see why from time to time the federal reserve embarks on a campaign of sustained interest rate increases that usually happens because the fed wants to reduce unsustainable price increases driven by speculation in the stock market or commodities markets as interest rates go up investors can get more without taking any risk in the money market that makes the risks of stocks commodities and even bonds less attractive as investors sell risk assets their prices decline which also decreases speculation there were several notable years when the fed repeatedly hiked rates 1981 and 1994 are perhaps the most famous and 2018 is a more recent example 2 in a rising rate environment it is challenging to find any asset with an increasing price however yield based calls especially on 13 week t bill yields are likely to be profitable it is impossible to get the hedging benefits of yield based options from conventional assets like stocks and bonds disadvantages of yield based optionsthere are other ways to get the benefits of yield based options yield based options are certainly less familiar to many investors than options on exchange traded funds etfs buying a put on a long term treasury etf is another way to profit when interest rates go up yield based options also suffer from time decay just like most other options if interest rates stay in place which they can do for years buyers of yield based options will lose money | |
what is yield basis | the yield basis is a method of quoting the price of a fixed income security as a yield percentage rather than as a dollar value this allows bonds with varying characteristics to be easily compared the yield basis is calculated by dividing the coupon amount paid annually by the bond purchase price understanding yield basisunlike stocks which are quoted in dollars most bonds are quoted with a yield basis for example assume a company is listed with a 6 75 coupon rate and is set to mature 10 years from the date of issuance the 1 000 par bond is trading at a dollar value of 940 the yield basis can be calculated using the current yield formula presented as 1following our example above the coupon to be paid annually is 6 75 x 1 000 67 50 therefore the yield basis is 67 50 940 0 0718 or 7 18 the bond will be quoted to investors as having a yield basis of 7 18 the yield quote tells a bond trader that the bond is currently trading at a discount because its yield basis is greater than its coupon rate 6 75 if the yield basis is less than the coupon rate this would indicate that the bond is trading at a premium since a higher coupon rate increases the value of the bond in the markets 2 a bond trader could then compare the bond to others within a certain industry bank discount yieldthe yield basis of a pure discount instrument can be calculated using the bank discount yield formula which is unlike the current yield the bank discount yield takes the discount value from par and expresses it as a fraction of the par value not the current price of the bond this method of calculating the yield basis assumes simple interest that is no compounding effect is factored in treasury bills are quoted only on a bank discount basis 3for example assume a treasury bill with a 1 000 face value is selling for 970 if its time to maturity is 180 days the yield basis will be as treasury bills pay no coupon the bondholder will earn a dollar return equal to the discount if the bond is held until it matures special considerations | |
when purchasing bonds it s important for the investor to understand the difference between the yield basis and the net yield basis on the secondary market you can purchase bonds through a broker dealer who could charge you a flat commission for this service however in lieu of a commission your broker may opt to sell bonds on a net yield basis | net yield means the yield also includes the broker s profit for the transaction this is the broker s markup which is the difference between what the broker paid for the bonds and what the broker sells them for if a broker offers bonds on a net yield basis they ve already included their markup for example if an online broker sells you a bond with a 3 75 yield to maturity ytm their profit is embedded directly in the price you pay and there is no separate commission | |
what is a yield curve | a yield curve is a line that plots the yields or interest rates of bonds that have equal credit quality but different maturity dates the slope of the yield curve predicts the direction of interest rates and the economic expansion or contraction that could result yield curves have three main shapes normal upward sloping inverted downward sloping and flat yield curve rates are published on the u s department of the treasury s website each trading day using a yield curvea yield curve is a benchmark for other debts in the market such as mortgage rates and bank lending rates the yield curve can predict changes in economic output and growth over time the most frequently reported yield curve compares the three month two year five year 10 year and 30 year u s treasury debt yield curve rates are available on the treasury s interest rate websites by 6 00 p m et each trading day 12some investors use the yield curve to make investment decisions based on the likely direction of bond rates a visual representation of the curve is easy to build using an excel spreadsheet types of yield curvesthe three types of yield curves include normal inverted and flat a normal yield curve shows low yields for shorter maturity bonds increasing for bonds with a longer maturity the curve slopes upward this indicates that yields on longer term bonds continue to rise responding to periods of economic expansion a normal yield curve implies stable economic conditions and a normal economic cycle a steep yield curve implies strong economic growth with conditions often accompanied by higher inflation and higher interest rates sample yields on the curve can include a two year bond that offers a yield of 1 a five year bond that offers a yield of 1 8 a 10 year bond that offers a yield of 2 5 a 15 year bond offers a yield of 3 0 and a 20 year bond that offers a yield of 3 5 some bond investors will use a roll down return strategy and sell a bond as it moves toward its maturity date this strategy is also known as riding the curve it works in a stable rate environment as the bond s yield falls and the price rises investors hope to capture profit from the rise in bond prices an inverted yield curve slopes downward with short term interest rates exceeding long term rates this type of curve corresponds to a period of economic recession when investors expect yields on longer maturity bonds to trend lower in the future 3investors seeking safe investments in an economic downturn tend to choose longer dated bonds over short dated bonds bidding up the price of longer bonds and driving down their yield image by julie bang investopedia 2019an inverted yield curve is rare it s historically been a warning of recession 3a flat yield curve shows similar yields across all maturities implying an uncertain economic situation a few intermediate maturities may have slightly higher yields that cause a slight hump to appear along the flat curve these humps are usually for mid term maturities of six months to two years the curve shows little difference in yield to maturity among shorter and longer term bonds a two year bond may offer a yield of 6 a five year bond of 6 1 a 10 year bond of 6 and a 20 year bond of 6 05 in times of high uncertainty investors demand similar yields across all maturities | |
what is a u s treasury yield curve | the u s treasury yield curve is a line chart that allows for the comparison of the yields of short term treasury bills and the yields of long term treasury notes and bonds the chart shows the relationship between the interest rates and the maturities of u s treasury fixed income securities the treasury yield curve is also referred to as the term structure of interest rates | |
what is yield curve risk | yield curve risk refers to the adverse effect of a shift in interest rates on the returns from fixed income instruments such as bonds it stems from the fact that bond prices and interest rates have an inverse relationship to each other the prices of bonds in the secondary market decrease when market interest rates increase and vice versa | |
how can investors use the yield curve | investors can use the yield curve to make predictions about the economy that will affect their investment decisions an investor might move their money into defensive assets that traditionally do well during a recession if the bond yield curve indicates an economic slowdown they might avoid long term bonds with a yield that will erode against increased prices if the yield curve becomes steep suggesting future inflation the bottom lineyield curves come in three main shapes a normal upward sloping curve an inverted downward sloping curve and a flat curve the slope of the yield curve predicts interest rate changes and economic activity investors can use the yield curve to make investment decisions that factor in the likely direction of the economy in the near future | |
what is the yield curve risk | the yield curve risk is the risk of experiencing an adverse shift in market interest rates associated with investing in a fixed income instrument when market yields change this will impact the price of a fixed income instrument when market interest rates or yields increase the price of a bond will decrease and vice versa understanding yield curve riskinvestors pay close attention to the yield curve as it provides an indication of where short term interest rates and economic growth are headed in the future the yield curve is a graphical illustration of the relationship between interest rates and bond yields of various maturities ranging from 3 month treasury bills to 30 year treasury bonds the graph is plotted with the y axis depicting interest rates and the x axis showing the increasing time durations since short term bonds typically have lower yields than longer term bonds the curve slopes upwards from the bottom left to the right this is a normal or positive yield curve interest rates and bond prices have an inverse relationship in which prices decrease when interest rates increase and vice versa therefore when interest rates change the yield curve will shift representing a risk known as the yield curve risk to a bond investor the yield curve risk is associated with either a flattening or steepening of the yield curve which is a result of changing yields among comparable bonds with different maturities when the yield curve shifts the price of the bond which was initially priced based on the initial yield curve will change in price special considerationsany investor holding interest rate bearing securities is exposed to yield curve risk to hedge against this risk investors can build portfolios with the expectation that if interest rates change their portfolios will react in a certain way since changes in the yield curve are based on bond risk premiums and expectations of future interest rates an investor that is able to predict shifts in the yield curve will be able to benefit from corresponding changes in bond prices in addition short term investors can take advantage of yield curve shifts by purchasing either of two exchange traded products etps the ipath us treasury flattener etn flat and the ipath us treasury steepener etn stpp types of yield curve risk | |
when interest rates converge the yield curve flattens a flattening yield curve is defined as the narrowing of the yield spread between long and short term interest rates when this happens the price of the bond will change accordingly if the bond is a short term bond maturing in three years and the three year yield decreases the price of this bond will increase | let s look at an example of a flattener let s say the treasury yields on a 2 year note and a 30 year bond are 1 1 and 3 6 respectively if the yield on the note falls to 0 9 and the yield on the bond decreases to 3 2 the yield on the longer term asset has a much bigger drop than the yield on the shorter term treasury this would narrow the yield spread from 250 basis points to 230 basis points you can chart these and other yields to create a yield curve in excel and other software a flattening yield curve can indicate economic weakness as it signals that inflation and interest rates are expected to stay low for a while markets expect little economic growth and the willingness of banks to lend is weak if the yield curve steepens this means that the spread between long and short term interest rates widens in other words the yields on long term bonds are rising faster than yields on short term bonds or short term bond yields are falling as long term bond yields are rising therefore long term bond prices will decrease relative to short term bonds steepening yields are a true risk for bond traders who use a roll down return strategy to profit from selling long term bonds they hold a steepening curve typically indicates stronger economic activity and rising inflation expectations and thus higher interest rates when the yield curve is steep banks are able to borrow money at lower interest rates and lend at higher interest rates an example of a steepening yield curve can be seen in a 2 year note with a 1 5 yield and a 20 year bond with a 3 5 yield if after a month both treasury yields increase to 1 55 and 3 65 respectively the spread increases to 210 basis points from 200 basis points on rare occasions the yield on short term bonds is higher than the yield on long term bonds when this happens the curve becomes inverted an inverted yield curve indicates that investors will tolerate low rates now if they believe rates are going to fall even lower later on so investors expect lower inflation rates and interest rates in the future | |
what is yield equivalence | yield equivalence is the interest rate on a taxable security that would generate a return equivalent to the return of a tax exempt security and vice versa understanding yield equivalenceyield equivalence is important to municipal bond investors who want to know if the tax savings of their bonds will make up for the lower yields relative to similar duration taxable securities yield equivalence is a comparison often used by investors when they are attempting to figure out if they d get a better return from a tax exempt or tax free investment than they would from a taxable alternative yield equivalence can be calculated using the following equations taxable yield equivalence tax exempt yield 1 tax rate begin aligned text taxable yield equivalence frac text tax exempt yield 1 text tax rate end aligned taxable yield equivalence 1 tax ratetax exempt yield andtax exempt yield equivalence taxable yield 1 tax rate begin aligned text tax exempt yield equivalence text taxable yield times 1 text tax rate end aligned tax exempt yield equivalence taxable yield 1 tax rate to calculate the yield equivalence between tax exempt and taxable securities start by dividing the bond s tax exempt yield by 1 minus the investor s tax rate for example suppose you were considering an investment in a 6 tax exempt municipal bond but wanted to know what the interest rate on a taxable corporate bond would have to be to give you the same return if you have a 24 rate of taxation you would subtract 0 24 minus one which totals 76 then you would divide 6 the tax exempt yield by 76 which equals 7 9 this calculation tells you that you would need a return of 7 9 on your taxable investment to match the 6 return on the tax exempt investment if on the other hand you were in the 35 tax bracket you would need a return of 9 2 on your corporate bond to match the 6 return on your muni investment conversely if you know your taxable rate of return you can calculate the equivalent rate on a tax exempt investment this is done by multiplying the taxable rate by 1 minus your tax rate so if your taxable return is 6 and your rate of taxation is 24 you need a 4 6 return on a tax exempt security to match the after tax return on a taxable security new marginal tax ratesthe passage of the tax cuts and jobs act in late 2017 resulted in a number of changes to marginal tax rates and income brackets beginning in 2018 1 the marginal tax rate is the rate of tax income earners incur on each additional dollar of income as the marginal tax rate increases taxpayers end up with less money per dollar earned than they had retained on previously earned dollars tax systems employing marginal tax rates apply different tax rates to different levels of income as income rises it is taxed at a higher rate it is important to note however the income is not all taxed at one rate but at many rates as it moves across the marginal tax rate schedule | |
when calculating the yield equivalence between tax free and taxable investments investors should be aware of these new tax rates and incorporate them accordingly into their yield equivalence equations | 2021 income tax brackets | |
what is yield maintenance | yield maintenance is a sort of prepayment penalty that allows investors to attain the same yield as if the borrower made all scheduled interest payments up until the maturity date it dictates that borrowers pay the rate differential between the loan interest rate and the prevailing market interest rate on the prepaid capital for the period remaining to loan maturity yield maintenance premiums are designed to make investors indifferent to prepayment the settlement of a debt or installment loan before its official due date furthermore it makes refinancing unattractive and uneconomical to borrowers understanding yield maintenance | |
when a borrower obtains financing either by issuing bonds or by taking out a loan e g mortgage auto loan business loan etc the lender is periodically paid interest as compensation for the use of their money for a period of time the interest that is expected constitutes a rate of return for the lender who projects earnings based on the rate | for example an investor who purchases a 10 year bond with a 100 000 face value and an annual coupon rate of 7 intends to be credited annually by 7 x 100 000 7 000 likewise a bank that approves a 350 000 at a fixed interest rate expects to receive interest payments monthly until the borrower completes the mortgage payments years down the line however there are situations in which the borrower pays off the loan early or calls in a bond prior to the maturity date this threat of a premature return of the principal is known as prepayment risk in financial lingo prepayment means the settlement of a debt or installment loan before its official due date every debt instrument carries it and every lender faces it to some degree the risk is that the lender won t get the interest income stream for as long a period as they counted on the most common reason for loan prepayment is a drop in interest rates which provides an opportunity for a borrower or bond issuer to refinance its debt at a lower interest rate to compensate lenders in the event that a borrower repays the loan earlier than scheduled a prepayment fee or premium known as yield maintenance is charged in effect the yield maintenance allows the lender to earn its original yield without suffering any loss yield maintenance is most common in the commercial mortgage industry for example let s imagine a building owner who s taken out a loan to buy an adjacent property it s a 30 year mortgage but five years in interest rates have fallen considerably and the owner decides to refinance he borrows money from another lender and pays off his old mortgage if the bank that issued that mortgage imposed a yield maintenance fee or premium it would be able to reinvest the money returned to them plus the penalty amount in safe treasury securities and receive the same cash flow as they would if they had received all scheduled loan payments for the entire duration of the loan | |
how to calculate yield maintenance | the formula for calculating a yield maintenance premium is ym pv of rp on the mortgage ir ty where ym yield maintenance pv present value rp remaining payments ir interest rate ty treasury yield the present value factor in the formula can be calculated as 1 1 r n 12 r where r treasury yield n number of months begin aligned textbf ym textbf pv of rp on the mortgage times textbf ir textbf ty textbf where text ym text yield maintenance text pv text present value text rp text remaining payments text ir text interest rate text ty text treasury yield text the present value factor in the formula can be calculated as frac 1 1 r frac n 12 r textbf where r text treasury yield n text number of months end aligned ym pv of rp on the mortgage ir ty where ym yield maintenancepv present valuerp remaining paymentsir interest ratety treasury yieldthe present value factor in the formula can be calculated as r1 1 r 12n where r treasury yieldn number of months for example assume a borrower has a 60 000 balance remaining on a loan with 5 interest the remaining term of the loan is exactly five years or 60 months if the borrower decides to pay off the loan when the yield on 5 year treasury notes drops to 3 the yield maintenance can be calculated in this way step 1 pv 1 1 03 60 12 0 03 x 60 000pv 4 58 x 60 000pv 274 782 43step 2 yield maintenance 274 782 43 x 0 05 0 03 yield maintenance 274 782 43 x 0 05 0 03 yield maintenance 5 495 65the borrower will have to pay an additional 5 495 65 to prepay his debt if treasury yields go up from where they were when a loan was taken out the lender can make a profit by accepting the early loan repayment amount and lending the money out at a higher rate or investing the money in higher paying treasury bonds in this case there is no yield loss to the lender but it will still charge a prepayment penalty on the principal balance | |
what is yield on cost yoc | yield on cost yoc is a measure of dividend yield calculated by dividing a stock s current dividend by the price initially paid for that stock for example if an investor purchased a stock five years ago for 20 and its current dividend is 1 50 per share then the yoc for that stock would be 7 5 yoc should not be confused with the term current dividend yield the latter refers to the dividend payment divided by the stock s current price rather than the price at which it was initially purchased understanding yield on cost yoc yoc shows the dividend yield associated with the initial price paid for an investment for that reason stocks that have grown their dividends over time can deliver very high yocs especially if the investor has held on to the stock for many years in fact it is not unusual for long term investors to own stocks whose current dividend payments are higher than the original price paid for the security producing a yoc of 100 or greater yoc is calculated based on the initial price paid for a security therefore investors must make sure they keep track of the holding costs they have incurred for that security over time as well as any additional share purchases they have made all of these costs should be included in the cost component of the yoc calculation otherwise the yield will appear unrealistically high | |
when evaluating dividend yields investors must also be careful not to compare apples and oranges specifically just because a stock s yoc is higher than the current dividend yield of another company it does not mean that the stock with the higher yoc is necessarily the better investment that is because the company with the high yoc may actually have a lower current dividend yield than other companies | in these situations the investor could be better off selling their shares in the high yoc company and investing the proceeds in a company with a higher current dividend yield considering yoc shows investors the long term benefits of stocks compared to bonds since bonds pay fixed interest rates rather than dividends that grow they have much less long term potential example of yield on cost yoc emma is a retiree who is reviewing her pension s investment returns her portfolio includes a large position in xyz corporation which her portfolio manager purchased 15 years ago for 10 share when it was purchased xyz had a current dividend yield of 5 based on a dividend of 0 50 per share in each of the 15 years that followed xyz raised its dividend by 0 20 per year it is expected to pay 3 50 per share this year its stock price has risen to 50 per share resulting in a yoc of 35 3 50 divided by the initial 10 share purchase price and a current dividend yield of 7 3 50 divided by the current 50 share price emma considers xyz to have been one of her most successful investments she takes satisfaction out of seeing the lofty yoc that it produces every year looking over the most recent report from her portfolio manager she was therefore shocked to find that they had sold the xyz position the manager reinvested the proceeds in abc industries a company with similar financial strength as xyz but with a current yield of 8 50 dismayed by this seemingly foolish decision emma calls her portfolio manager she asks why they sold a position yielding 35 in exchange for one yielding only 8 50 the portfolio manager explains to emma that she has made a common mistake rather than comparing yoc to the current dividend yield she should make an apples to apples comparison between both companies current dividend yields from this perspective switching to abc was perhaps a wise choice because it offered a higher yield on her money 8 50 versus 7 however the two companies dividend growth prospects are more important if emma wants to continue increasing the yield on cost | |
what is yield on earning assets | the yield on earning assets is a popular financial solvency ratio that compares a financial institution s interest income to its earning assets yield on earning assets indicates how well assets are performing by looking at how much income they bring in understanding yield on earning assetssolvency ratios shed light on if a financial institution has the ability to stay in business by meeting its short term obligations the yield on earning assets is a way for regulators to determine how much money a financial institution is earning on its assets large cash yields are preferred thereby indicating that a company can pay its short term obligations and is not at risk of default or insolvency banks and financial institutions that provide loans and other investment options that offer yields have to strike a balance between the different types of investment vehicles they offer the interest rates charged and the duration of those investments these factors determine the amount of interest income a debt vehicle will bring in over a specific time frame this interest income is then compared to the earning assets generally speaking the higher a company s loan to asset ratio the higher its yield on returning assets this is because the more loans made the more interest income earned or because higher yielding investment vehicles bring in more income relative to the amount of money loaned out high yield vs low yieldhigh yield on earning assets is an indicator that a company is bringing in a large amount of income from the loans and investments that it makes this is often the result of good policies such as ensuring that loans are appropriately priced and investments are properly managed as well as the company s ability to garner a larger share of the market financial institutions with a low yield on earning assets are at an increased risk of insolvency which is the reason the yield on earning assets is of interest to regulators a low ratio means that a company is providing loans that do not perform well since the amount of interest from those loans is approaching the value of the earning assets regulators may take this as an indicator that a company s policies are creating a scenario in which the company will not be able to cover losses and could thus become insolvent as a measure of effectiveness yield on earning assets can be useful for comparing different managers relative to their asset bases managers or entire businesses that can generate sizable yield with a small asset base are considered to be more efficient and likely offer more value increasing a low yield on earning assetsincreasing a low yield on earning assets often involves a review and restructuring of a company s policies and approach to risk management as well as a review of the general operations of how the company chooses which loans to provide to which markets depending on the business or strategy at times yield on earning assets may need to be adjusted for various methods when compiling financial statements for instance certain off balance sheet items could distort reported yield on assets when using financial statements that have not been adjusted to reflect these off balance sheet items furthermore financial institutions could be charging low interest rates to remain competitive and gain business which would result in a lower amount of income earned in this case a review of a company s pricing policy would be necessary | |
what is yield pickup | yield pickup refers to the additional interest rate an investor receives by selling a lower yielding bond and buying a higher yielding bond the yield pickup is done to improve the risk adjusted performance of a portfolio understanding a yield pickup strategya yield pickup is an investment strategy which involves trading bonds with lower yields for bonds with higher yields while picking up additional yield enables greater returns the strategy also comes at a greater risk a bond with a lower yield generally has a shorter maturity while a bond with a higher yield will typically have a longer maturity bonds with longer term maturities are more sensitive to interest rate movements in the markets hence an investor is exposed to interest rate risk with the longer maturity bond additionally there is a positive relationship between yield and risk the higher the risk perceived of the bond the higher the yield required by investors to incentivize them to purchase the bond bonds with a higher risk have a lower credit quality than bonds with lower risk with a yield pickup then a certain amount of risk is involved since the bond with a higher yield is often of a lower credit quality for example an investor owns a bond issued by company abc that has a 4 yield the investor can sell this bond in exchange for a bond issued by company xyz that has a yield of 6 the investor s yield pickup is 2 6 4 2 this strategy can profit from either a higher coupon or higher yield to maturity ytm or both bonds that have a higher default risk often have higher yields making a yield pickup play risky ideally a yield pickup would involve bonds that have the same rating or credit risk though this is not always the case pickup and swapsthe yield pickup strategy is based on the pure yield pickup swap which takes advantage of bonds that have been temporarily mispriced buying bonds that are underpriced relative to the same types of bonds held in the portfolio thus paying a higher yield and selling those in the portfolio that are overpriced which consequently pay a lower yield the swap involves trading lower coupon bonds for higher coupon bonds increasing the reinvestment risk faced by the investor when interest rates decline since it is likely that the high coupon bond will be called by the issuer there is also some risk faced if interest rates go up for instance if prevailing rates in the economy go up while the transaction is in progress or over the holding period of the bond the investor may incur a loss the yield pickup strategy is entered into simply to generate higher yields an investor does not need to speculate or predict the movement of interest rates this strategy results in worthwhile gains if implemented properly and at the right time investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment investors investing involves risk including the possible loss of principal | |
what is a yield spread | a yield spread is the difference between yields on differing debt instruments of varying maturities credit ratings issuers or risk levels a yield spread is calculated by deducting the yield of one instrument from the other this difference is most often expressed in basis points bps or percentage points yield spreads are commonly quoted in terms of one yield versus that of u s treasuries where it is called the credit spread for example if the five year treasury bond is at 5 and the 30 year treasury bond is at 6 the yield spread between the two debt instruments is 1 if the 30 year bond is trading at 6 then based on the historical yield spread the five year bond should be trading at around 1 making it very attractive at its current yield of 5 investopedia ellen lindner | |
how yield spreads work | the yield spread is a key metric that bond investors use when gauging the level of expense for a bond or group of bonds if one bond yields 7 and another one yields 4 the spread is three percentage points or 300 bps non treasury bonds are generally evaluated based on the difference between their yield and that of a treasury bond of comparable maturity typically the higher the risk a bond or asset class carries the higher its yield spread when an investment is viewed as low risk investors do not require a large yield for tying up their cash however if an investment is viewed as a higher risk investors demand adequate compensation through a higher yield spread in exchange for taking on the risk of their principal declining because bond yields often change yield spreads change too let s say the yield on a high yield bond index increases to 7 5 from 7 meanwhile the 10 year treasury yield remains at 2 the spread moved from 500 basis points to 550 basis points the difference between the bond and the 10 year u s treasury which indicates that high yield bonds underperformed treasuries during that period yield spreads can be used to help predict recessions and economic recoveries and may indicate how investors view economic conditions widening spreads typically lead to a positive yield curve indicating stable economic conditions in the future but when falling spreads contract worsening economic conditions may be coming resulting in a flattening of the yield curve yield spread vs credit spreada bond credit spread reflects the difference in yield between a treasury and corporate bond of the same maturity debt issued by the united states treasury is used as the benchmark in the financial industry due to its risk free status being backed by the full faith and credit of the u s government us treasury government issued bonds are considered to be the closest thing to a risk free investment as the probability of default is almost non existent investors have the utmost confidence in getting repaid types of yield spreadsthere are a few different types of yield spreads including the zero volatility high yield bond and the option adjusted spread we explore these in a little more detail below a zero volatility spread z spread measures the spread realized by the investor over the entire treasury spot rate curve assuming the bond would be held until maturity this method can be a time consuming process as it requires a lot of calculations based on trial and error you would basically start by trying one spread figure and run the calculations to see if the present value of the cash flows equals the bond s price if not you have to start over and keep trying until the two values are equal the high yield bond spread is the percentage difference in current yields of various classes of high yield bonds compared against investment grade e g aaa rated corporate bonds treasury bonds or another benchmark bond measure high yield bond spreads that are wider than the historical average suggest greater credit and default risk for junk bonds an option adjusted spread oas converts the difference between the fair price and market price expressed as a dollar value and converts that value into a yield measure interest rate volatility plays an essential part in the oas formula the option embedded in the security can impact the cash flows which is something that must be considered when calculating the value of the security example of a yield spreadlet s say a bond issued by a large financially healthy company typically trades at a relatively low spread in relation to u s treasuries in contrast a bond issued by a smaller company with weaker financial strength typically trades at a higher spread relative to treasuries for this reason bonds in emerging markets and developed markets as well as similar securities with different maturities typically trade at significantly different yields | |
what is a yield spread | the difference in yields on two debt instruments that have different maturity dates issuers credit ratings or risk levels is known as the yield spread yield spreads are commonly reported in percentage or basis points in order to determine the yield spread you must subtract one investment s yield from that of the other can yield spreads forecast future economic performance yield curves are valuable tools that can shed light on the economy which means they can be used to help forecast whether a recession or a recovery is on the horizon as such they are often considered leading economic indicators when spreads widen it leads to a positive yield curve this means that the economy is expected to grow in the future but when the yield curve flattens it generally indicates that short term rates are falling the expectation here is that the economy won t be doing very well in the future | |
what is a yield spread premium | a yield spread premium is a type of compensation paid to mortgage brokers these individuals receive this fee from lenders when they give borrowers mortgage loans with interest rates that are higher than the lender s standard rate the yield spread premium doesn t include any additional costs that borrowers are typically responsible for such as commissions or other fees the bottom lineif you re a savvy investor or a fund manager you can figure out what the best investments are for you or your clients using different metrics including yield spreads this is the difference between two investments notably bonds with different maturities issuers credit ratings and risks you can also use yield spreads to figure out which bonds tend to be affordable or expensive | |
what is a yield spread premium ysp | a yield spread premium ysp is a form of compensation that a mortgage broker acting as the intermediary receives from the originating lender for selling an interest rate to a borrower that is above the lender s par rate for which the borrower qualifies the ysp can sometimes be applied to cover costs associated with the loan so the borrower isn t on the hook for additional fees as a result of legislation that was passed in 1999 the yield spread premium had to be reasonably related to the actual services the mortgage broker performs for the home buyer 1 the yield spread premium also had to be disclosed by law on the hud 1 form when the loan is closed the 2010 dodd frank financial reform bill subsequently banned yield spread premium altogether a prohibition put into place to protect consumers after the 2008 09 financial crisis 2 | |
how a yield spread premium worked | mortgage brokers are compensated directly by borrowers when the borrower pays an origination fee when the lender pays the broker a yield spread premium or a combination of these if there is no origination fee the borrower is most likely agreeing to pay an interest rate above the market rate paying an interest rate above market rates to compensate a mortgage broker lender is not necessarily a bad thing for the borrower as it can reduce the mortgage s upfront costs there is no such thing as a 100 no cost mortgage for the borrower if a borrower does not pay closing costs or commissions they will end up paying those fees spread out over the life of the loan in the form of slightly higher monthly payments note that if a borrower expects to hold the mortgage for a short time paying a relatively high interest rate can be more economical than paying high fees upfront a thorough cost benefit analysis should be performed before any contracts are signed par rates and mortgage brokersthe par rate is the standard interest rate offered by a mortgage lender based on the terms of the loan and the creditworthiness of the borrower this rate is free of any adjustments such as closing points discount mortgage points fees or commissions | |
what is a yield tilt index fund | a yield tilt index fund is a type of fund that invests in stocks or securities that mirrors the holdings of a market index but contains a higher weighting towards higher yielding investments a yield tilt index fund can be a mutual fund which is a basket of securities that are actively managed by a portfolio or fund manager a yield tilt index fund can also be an exchange traded fund etf which merely mirrors an index of stocks | |
how a yield tilt index fund works | typically an index fund would contain all of the stocks of a particular stock index such as the standard poor s 500 index s p 500 investors can t buy an index per se since it s merely a tracking mechanism containing a collection of stocks designed to provide investors with the overall trend for those stocks instead investors would need to buy a fund that contains all of those stocks within the index for example there are etfs that contain all 500 of the stocks in the s p 500 however if investors want to own the index while also increasing their return they can invest in a tilt fund tilted funds contain all of the stocks of a benchmark index but are enhanced with investments that tilt the fund in the direction of a specific investment strategy or financial goal for example many stocks pay dividends which are usually cash payments paid to investors as a reward for owning a stock a tilted fund might mirror an index but also contain more shares of the stocks that pay high dividends yield tilt index fund weightinga yield tilt index fund enhances the income of a standard index fund by weighting its holdings towards stocks that pay higher dividends in other words attractive dividend paying stocks are given a greater portfolio weighting making them represent more of the fund s portfolio than they otherwise would in the standard index the fund s yield is tilted due to the heavier weighting in that direction in this way the fund is tilted towards earning higher than normal dividend income while also keeping with the overall investment strategy of owning the benchmark index benefits of yield tilt index funda yield tilt index fund allows for the fund to be able to outperform the yield from the baseline fund also many dividend paying stocks are of well established companies since they need to generate consistent earnings to keep up with paying quarterly dividends as a result a fund that s tilted toward dividend paying companies can also enhance the returns from the investments in the fund since it s overweighted with more profitable companies since the investment strategy of a yield tilt index fund uses a baseline benchmark index the fund is diversified meaning the invested dollars are spread out over many companies this diversification reduces the risk of loss if a few of the companies within the fund fall into financial difficulties the other remaining companies can still outperform which partially offsets the drag on the fund from the underperformers since the fund is merely tilted towards dividend paying stocks the fund can continue to keep pace with the direction of the overall market while boosting dividend income with little additional risk if a yield tilt index fund has the proper mix of investments it can provide investors with an enhanced yield along with the safety that comes with investing in index funds yield tilt index funds and taxesthe structure of a yield tilt index fund can offer some tax benefits for investors who are seeking a way to minimize the tax liability associated with their holdings dividend payments issued to shareholders can be subject to double taxation this means that they are taxed once at the corporate level and then once again at the shareholder level so the investor is essentially paying income taxes twice on the same single amount of income 1proponents of this taxation structure see it as a way to ensure the wealthy are paying their fair share and cannot get rich off their investment earnings without paying a sufficient amount of taxes in return opponents on the other hand contend that this dual level taxation is unfair and imposes an additional penalty on successful investors due to the effect of double taxation some investors contend that the market must value the share prices of high yield stocks at somewhat of a discount to other stocks so as to provide an increased return on high yield stocks in order to compensate for the negative tax effects the theory is that an investor who is able to purchase a yield tilt index fund in a tax sheltered investment account such as a retirement account might be able to outperform the index since they receive the supposed valuation benefit but are sheltered from taxes on the dividends they receive roth iras are funded with after tax dollars this means that the contributions are not tax deductible but once you start withdrawing funds the money is tax free this strategy would be a potentially smart option for a sophisticated investor who understands the intricate details of this structure is familiar with the tax regulations involved or has a financial advisor who is well versed in the tax code | |
how to invest in a yield tilt index fund | investors will find that the tax advantaged strategy of holding yield tilt index funds in tax sheltered accounts means that they will be purchasing these types of funds as an etf the investor would purchase the etf through the custodian who manages their tax sheltered account such as schwab fidelity or maybe a robo advisor from that point the security is purchased and all an investor needs to do is let the dividend strategy develop in their account a common tax advantaged account that could use this strategy would be a roth ira many investors will choose to purchase these funds through their brokerage account instead of with the fund directly as the index fund they intend to purchase is usually only a portion of their portfolio having a brokerage account allows for greater purchasing diversity versus investing with the fund directly although often at the cost of additional fees such as trading commissions | |
what is a good roi for an index fund | there are tax considerations when using an index fund as well as expense ratios that could eat away at a return on investment roi an index fund will not necessarily deliver the highest return but this comes with the benefit of diversification diversification alleviates some aspects of risk and is considered a must in any investment portfolio can you lose all your money in an index fund it is nearly impossible to lose all your money in an index fund for this to happen every single stock that comprises the fund will need to go to zero not only this but the owner of the fund would need to declare bankruptcy and be unable to sell any of their assets in order to pay back the holders of the fund neither of these scenarios is likely to happen | |
do i get dividends from index funds | certain index funds pay dividends as the fund receives dividends from the stocks they hold in the fund others will reinvest the dividends into their fund and although the investor who holds shares in the index fund won t receive an actual dividend the reinvestment will be apparent in the appreciation of the fund s share price | |
what is a dividend yield fund | a dividend yield fund is a fund that tracks an index of companies that have a history of paying regular high dividends these funds will seek to mirror the performance of the underlying index investors who favor a dividend based strategy will lean heavily on these funds for the core of their investment portfolio the bottom lineyield tilt index funds can be a great way for investors to track an index while also pursuing dividend based strategy goals these types of funds offer the risk averse nature inherent in diversification while providing a lean or tilt towards those companies who produce regular dividends investors looking to reinvest dividend growth back into their portfolio such as with a dividend reinvestment plan drip should consider tilt funds to meet their investment objectives | |
what is yield to average life | yield to average life is the calculation of a bond s yield based on the average maturity rather than the stated maturity date of the issue this yield replaces the stated final maturity with the average life maturity average life is also called the weighted average maturity wam or weighted average life wal understanding yield to average lifeyield to average life lets the investor estimate the actual return from a bond investment regardless of the bond s exact maturity date the yield to average life calculation assumes that the bond matures on the day given by its average life and at the average redemption price instead of the par price it can be calculated with the same formula as yield to maturity ytm by substituting the average life for the bond s maturity yield to average life determines the amount of time it will take to recover one half of a bond s face value bonds that have a faster repayment of principal will lower the risk of default and allows a bondholder to reinvest their money sooner speedier reinvestment can be good or bad depending on which direction interest rates have moved since the investor bought the bond while some bonds repay the principal in a lump sum at maturity others repay the principal in installments over the term of the bond this installment method of repayment is called a sinking fund feature in these bonds the indenture requires the issuer to set money aside into a separate account regularly this account is for the exclusive purpose of redeeming the bonds with the amortization of a bond s principal in this way the average life calculation will allow investors to determine how soon repayment of the principal will be trustees of a sinking fund bond will use the yield to average life calculation to help them determine if they should re buy some of the bonds on the open market this is typical when the bonds are trading below par the average life in this case may be significantly less than the actual number of years until maturity a sinking fund is a means of repaying funds borrowed through a bond issue through periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market a sinking fund improves a corporation s creditworthiness letting the business pay investors a lower interest rate yield to average life for mortgage backed securitiesyield to average life allows investors to determine the expected return of mortgage backed securities mbs because of the prepayment of the underlying mortgage debt this metric is useful in the pricing of mbss such as collateralized mortgage obligations cmos issued by the federal home loan mortgage corporation freddie mac and private issuers an mbs generally repays principal throughout the life of the investment depending on whether the mbs was purchased at a discount or a premium the advanced paying of the principal can affect an investor s expected return an environment with declining interest rates often leads homeowners to refinance in the refinancing process the old loan is paid off as a new loan with lower interest payments takes its place | |
what is yield to call | yield to call ytc is the return that a bondholder will be paid if the bond is held until the call date which will occur sometime before the bond reaches maturity yield to call applies to callable bonds a type of bond that allows the investor to redeem the bond or the bond issuer to repurchase it on the call date at a price known as the call price by definition the call date of a bond occurs before the maturity date this number can be mathematically calculated as the compound interest rate at which the present value of a bond s future coupon payments and call price is equal to the current market price of the bond generally speaking bonds are callable over several years they are normally called at a slight premium above their face value though the exact call price is based on prevailing market rates understanding yield to callmany bonds are callable including municipal bonds and bonds issued by corporations if interest rates fall the company or municipality that issued the bond might opt to pay off the outstanding debt and get new financing at a lower cost 1calculating the yield to call on such bonds is important because it reveals the rate of return the investor will receive assuming the yield to call is widely deemed to be a more accurate estimate of expected return on a bond than the yield to maturity calculating yield to callalthough the formula used to calculate the yield to call is quite straightforward the complete formula to calculate yield to call is p c 2 x 1 1 ytc 2 2t ytc 2 cp 1 ytc 2 2t | |
where | p the current market pricec the annual coupon paymentcp the call pricet the number of years remaining until the call dateytc the yield to callbased on this formula the yield to call cannot be solved directly an iterative process must be used to find the yield to call if the calculation is being done by hand fortunately many software programs have a solve for function that s capable of calculating such values with a click of the mouse yield to call exampleas an example consider a callable bond that has a face value of 1 000 and pays a semiannual coupon of 10 the bond is currently priced at 1 175 and has the option to be called at 1 100 five years from now note that the remaining years until maturity does not matter for this calculation using the above formula the calculation would be set up as 1 175 100 2 x 1 1 ytc 2 2 5 ytc 2 1 100 1 ytc 2 2 5 through an iterative process it can be determined that the yield to call on this bond is 7 43 | |
are callable bonds better than non callable bonds | non callable bonds are preferred by some investors because the issuer is locked into the return until the bond reaches its maturity date for the same reason non callable bonds tend to pay a little less interest than callable bonds the issuer is taking the risk that a change in interest rates will force it to pay more interest than necessary for the loan | |
are most bonds callable | most corporate bonds and municipal bonds are callable most u s treasury bonds and notes are non callable | |
what happens to callable bonds when interest rates rise | the issuer of a bond is less likely to call the bond when interest rates rise the issuer is unlikely to get a better deal by replacing it | |
when interest rates decline the issuer is more likely to call the bond in order to replace it | the bottom lineif you invest in callable bonds you need to know its yield to maturity but it is perhaps more important to know its yield to call yield to call is the return you will get if the issuer decides to essentially cancel the issue and pay off investors early if you want real assurance that you ll get the yield to maturity that you expect consider investing in non callable bonds they pay a bit less than callable bonds but you ll be certain to get the income you expect from them | |
what is yield to maturity ytm | yield to maturity ytm is considered a long term bond yield but is expressed as an annual rate it is the internal rate of return irr of an investment in a bond if the investor holds the bond until maturity with all payments made as scheduled and reinvested at the same rate yield to maturity is also referred to as book yield or redemption yield ytm accounts for the present value of a bond s future coupon payments and factors in the time value of money investopedia jessica olahytm formulasbonds are priced at a discount at par or a premium at par the bond s interest rate equals its coupon rate above par the bond is called a premium bond with a coupon rate higher than the realized interest rate a bond priced below par called a discount bond has a coupon rate lower than the realized interest rate calculating ytmto calculate ytm on a bond priced below par investors plug in various annual interest rates higher than the coupon rate to find a bond price close to the researched bond price calculations of yield to maturity assume that all coupon payments are reinvested at the same rate as the bond s current yield and account for the bond s current market price par value coupon interest rate and term to maturity the ytm is a snapshot of the return on a bond because coupon payments cannot always be reinvested at the same interest rate as interest rates rise the ytm will increase as interest rates fall the ytm will decrease investors can approximate ytm using a bond yield table financial calculator or online ytm calculator ytm vs coupon rateunlike stock investments bond issuers promise to pay the holder the full face value once it matures bonds come with two metrics ytm and coupon rate ytm is the total return expected on a bond if it s held until maturity the coupon rate is the total amount the bond pays in income to the bondholder for as long as they hold it the coupon rate is the interest paid annually on the bond s face value a bond s ytm fluctuates over time the coupon rate remains fixed trial and error examplean investor holds a bond whose par value is 100 the bond is priced at a discount of 95 92 matures in 30 months and pays a semi annual coupon of 5 therefore the current yield of the bond is 5 coupon x 100 par value 95 92 market price 5 21 to calculate ytm the cash flows must be determined first every six months semi annually the bondholder receives a coupon payment of 5 x 100 2 2 50 in total they receive five payments of 2 50 in addition to the face value of the bond due at maturity which is 100 next we incorporate this data into the formula in this example the par value of the bond is 100 but it is priced below the par value at 95 92 meaning the bond is priced at a discount the annual interest rate must be greater than the coupon rate of 5 investors calculate and test several bond prices by plugging various annual interest rates that are higher than 5 into the formula above taking the interest rate up by one and two percentage points to 6 and 7 yields bond prices of 98 and 95 respectively because the bond price in the example is 95 92 the list indicates that the interest rate is between 6 and 7 having determined the range of rates investors take a closer look and make another table showing the prices where ytm calculations produce a series of interest rates increasing in increments of 0 1 instead of 1 0 using interest rates with smaller increments calculated bond prices are as follows the present value of this bond is equal to 95 92 when the ytm is at 6 8 fortunately 6 8 corresponds precisely to the bond price so no further calculations are required if the investor found that using a ytm of 6 8 in their calculations did not yield the exact bond price they would continue trials and test interest rates increasing in 0 01 increments variations of ytmyield to maturity has variations that account for bonds with embedded options | |
what are limitations of ytm | ytm calculations usually do not account for taxes that an investor pays on the bond 1 in this case ytm is known as the gross redemption yield ytm calculations also do not account for purchasing or selling costs ytm makes assumptions about the future and an investor may not be able to reinvest all coupons the bond may not be held to maturity and the bond issuer may default | |
what is the difference between a bond s ytm and its coupon rate | the main difference between the ytm of a bond and its coupon rate is that the coupon rate is fixed and the ytm fluctuates the coupon rate is contractually fixed whereas the ytm changes based on the price paid for the bond and the interest rates available in the marketplace |