Discount yield, a crucial financial metric, measures the annual return on a bond. It indicates the percentage of a bond’s face value an investor will receive as interest payments each year. For instance, a bond with a face value of $1,000 and a discount yield of 5% will pay the investor $50 in annual interest.
Understanding discount yield is essential for investors seeking fixed-income returns. It enables them to compare bonds and make informed investment decisions. Its significance lies in providing a comprehensive assessment of a bond’s profitability and risk.