yield and interest rate, the difference? - Posted by Sandy

Posted by DougO(NM) on October 21, 1999 at 07:04:01:

If you don’t already have it, call 800-544-4488 and get “Invest in Debt” by Jimmy Napier. Next, yield is how much comes out of an investment based on what went in, over the period being measured, usually a year. If you invest $100 and you got back $10, you yield would be figured by dividing output by input 10/100 or 10%. In this case it looks like you got 10% of your principle back, but thats not really what yeild is looking at. You could look at payback period, which says that based on this example, you’d recover the initial investment in 10 years. Yes the yield an investor expects influences the discount of a note. If you study the book I told you about, you’l see that the mathematical relationship between the face interest rate and the present value of a cash flow (note) is inverse. If you raise that number, the present value goes down, etc. You may also check out the articles at www.realdata.com, especially measuring the quality of an investment.
Don’t worry, you’ll “get it” !
Doug

yield and interest rate, the difference? - Posted by Sandy

Posted by Sandy on October 20, 1999 at 17:22:19:

Can somebody give me a good explanation of the difference between yield and interest?

Re: yield and interest rate, the difference? - Posted by Tom-kc

Posted by Tom-kc on October 21, 1999 at 23:26:58:

I like to think of it as interest is the money i am making on my money, and yeild is the money i make from my money
Tom

Example - Posted by Alan_FL

Posted by Alan_FL on October 21, 1999 at 08:03:38:

Say you purchase a Mobile Home for $2500.00. You then re-sell it for $5000.00 w/$500.00 down @ 12.75% interest for 30 months. The interest that you are recieving is 12.75%, however, your yield is much higher. You sold for $5000.00 and got $500.000 down so you have a note for $4500.00, but, you only paid $2500.00 less the $500.00 down leaves you with only $2000.00 in the deal.

So, the interest is what you are recieving on your note (12.75%), the yield is your return on total invested dollars. In this example, $2000.00 is the total invested dollars, 94.79% is the yield and 12.75% is the interest rate.

Hope this helps,

Alan

Re: yield and interest rate, the difference? - Posted by DougO(NM)

Posted by DougO(NM) on October 20, 1999 at 18:40:59:

Hi Sandy
The difference between yield and interest:
One is spelled y-i-e-l-d and the other is spelled i-n-t-e-r-e-s-t. (Sorry, couldn’t resist)
In the case of investing, the two words are sometimes interchanged.
Interest, as it relates to money in general, is the compensation allowed by law or fixed by the parties for the use or forberance of borrowed money. (Rent on the money) Yield is the current return from an investment or expenditure as a percentage of price or investment or expenditure.

Hope that clears it up.

Doug

Re: yield and interest rate, the difference? - Posted by Sandy

Posted by Sandy on October 20, 1999 at 23:15:12:

It all sounds simple and then it’s not. Does the yield determine the amount of the principal investment that will return over each year? Does it influence the discount on a note? Keep throwing me bones, it is bound to become clear, or maybe I am overcomplicating it.