How to calculate yield on an investment: the formula for each asset

“Yield” is the word investors use for income: what an investment pays you each year, compared with what it costs. Rent, dividends, bond interest and savings interest are all measured the same way, which is what makes yields easy to compare across very different investments.

The basic formula

Yield = yearly income ÷ price × 100. An apartment bought for $200,000 and rented for $1,000 a month brings in $12,000 a year: a yield of 6%. A share bought for $50 that pays $2 of dividends a year yields 4%. The price can be what the investment costs today, or what you actually paid for it; the next sections say which one each kind of yield uses.

Yield formulas by type of investment

• Rental property, gross yield

  A year's rent ÷ price

  $12,000 ÷ $200,000 = 6%

• Rental property, net yield

  (A year's rent − running costs) ÷ price

  ($12,000 − $3,600) ÷ $200,000 = 4.2%

• Property, cap rate

  Net operating income ÷ value

  $30,000 ÷ $500,000 = 6%

• Shares, dividend yield

  Yearly dividend per share ÷ share price

  $2 ÷ $50 = 4%

• Bonds, current yield

  Yearly interest (coupon) ÷ price

  $50 ÷ $950 = 5.26%

• Bonds, yield to maturity

  The yearly rate that makes all remaining interest plus the face value worth today's price

  $950 bond, 5% coupon, 10 years left: about 5.66%

• Savings, annual percentage yield (APY)

  (1 + rate ÷ n)ⁿ − 1, with n interest payments a year

  4.5% paid monthly: 4.59%

• Treasury bill, investment rate

  (Face value − price) ÷ price × 365 ÷ days

  ($10,000 − $9,800) ÷ $9,800 × 365 ÷ 182 = 4.09%

Every yield is a yearly percentage, so you can line them up side by side. Each name in the table opens the calculator that works it out for your own numbers.

Gross or net: before or after costs

Most quoted yields are gross: they ignore what it costs to earn the income. For a rental, that means empty months, repairs, insurance, property tax and management, which often take a quarter to a third of the rent. Net yield takes them off first, so it is the one to compare. The difference is explained in gross vs. net rental yield.

Today's price or the price you paid

A yield measured against today's price tells a new buyer what they would earn. Measured against what you paid, it is called yield on cost, and it tells you how your own purchase is doing: a share bought for $40 that now pays $3 a year yields 7.5% on cost, even if its price has risen to $75 and its current yield is only 4%. For bonds, the current yield uses today's price, while the yield to maturity also counts the gain or loss until the bond repays its face value; see current yield vs. yield to maturity.

Yield is not the same as total return

Yield counts income only. Your total return also counts what happens to the price: a 4% yield on a share that falls 10% in a year is a loss. To measure everything together, use the return on investment (ROI) and, for a yearly figure, the compound annual growth rate (CAGR); see ROI vs. CAGR.

Taxes and inflation come off too

Yields are quoted before tax and before inflation. A 5% yield taxed at 30% leaves 3.5%, and with prices rising 3% a year, what that money can buy grows by only about 0.5%. To see what a yield is really worth, read nominal vs. real return.