Yield rate tells you what per cent was made from an investment. A business can use yield rate to compare a variety of projects or investments to see which is the most profitable. To calculate yield rate, you will need all variables involved, including the initial investment and the amount of money made from the investment. Yield rate is calculated for a certain period of time, such as one or five years. The higher the yield rate, the more profitable the investment.
- Skill level:
- Moderately Easy
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Determine the amount of your initial investment. You will also need to know how what the end of the investment period is. For our example, £6,500 is invested for one year. Determine how much money was made from the investment at the end of the year.
Divide the amount of money earned from the investment by the initial investment. If £260 was earned from the investment at the end of the year, divide £260 by £6,500. The yield rate would be 4 per cent (.04). If the amount earned from the investment was £487, the yield rate would be 7.5 per cent.
Compare yield rates of two investments. If you invest £1,950 for one year and receive a return of £130 your yield rate is 6.6 per cent (.066). An investment of £9,750 for one year returns profits in the amount of £617; therefore the yield is 6.3 per cent (.063). Many companies will consider the £1,950 investment to be the better investment because it has the highest yield rate.
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