# Discount Yield

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## Definition of 'Discount Yield'

The discount yield is a measure of the return on an investment that is calculated by taking the difference between the face value of the investment and its current market value and dividing that difference by the current market value. The discount yield is often used to compare the returns on different investments, and it can also be used to estimate the future value of an investment.

To calculate the discount yield, you first need to find the face value of the investment. This is the amount of money that you will receive when the investment matures. You then need to find the current market value of the investment. This is the price that you would have to pay to buy the investment today. Once you have the face value and the current market value, you can calculate the discount yield by using the following formula:

Discount Yield = (Face Value - Current Market Value) / Current Market Value

For example, let's say that you are considering investing in a bond that has a face value of \$1,000 and a current market value of \$900. The discount yield on this bond would be calculated as follows:

Discount Yield = (\$1,000 - \$900) / \$900 = .1111, or 11.11%

This means that the bond is expected to return 11.11% of its current market value over the course of its life.

The discount yield is a useful tool for comparing the returns on different investments. However, it is important to note that the discount yield does not take into account the risk of the investment. For example, a bond with a high discount yield may also have a high risk of default. Therefore, it is important to consider the risk of an investment before making a decision about whether or not to invest in it.

In addition to the discount yield, there are a number of other measures of return that can be used to compare investments. These include the yield to maturity, the internal rate of return, and the net present value. Each of these measures has its own advantages and disadvantages, and the best measure to use will depend on the specific investment that you are considering.

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