Yield and Internal Rate of Return
Overview
The most basic measure of performance in finance is the
arithmetic return.
(see also
measures of performance)
For a fixed income instrument, the money that is paid to the holder of the security is paid out in increments over
time. This complicates using a measure as simple as return, because of the difference in timing of the paymets.
(for example, do you just sum the payments and divide by the invested capital?)
Measures of yield are essentially measures of return that are adjusted and applied to payment streams.
Topics
