What term describes the return on an investment expressed as a percentage of its cost?

What term describes the return on an investment expressed as a percentage of its cost?

• A. Return on investment
• B. Basis
• C. Price
• D. Yield

Answer: (D)

Yield expresses the return from an investment as a percentage of what you paid. It’s found by dividing the annual income you receive from the investment (like interest or dividends) by the cost or current price of the investment. For example, buying a bond for $1,000 that pays $50 of interest each year gives a yield of 5%. This focus on income relative to the amount invested is exactly what “return as a percentage of cost” describes. Return on investment is broader, referring to total profitability and can include changes in price, not just income. Basis is the cost basis used for tax purposes, not a return rate. Price is the amount paid to acquire the asset, not the return generated.

Yield expresses the return from an investment as a percentage of what you paid. It’s found by dividing the annual income you receive from the investment (like interest or dividends) by the cost or current price of the investment. For example, buying a bond for $1,000 that pays $50 of interest each year gives a yield of 5%. This focus on income relative to the amount invested is exactly what “return as a percentage of cost” describes.

Return on investment is broader, referring to total profitability and can include changes in price, not just income. Basis is the cost basis used for tax purposes, not a return rate. Price is the amount paid to acquire the asset, not the return generated.