Yield vs Interest rate vs (expected) return

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Using an example, what is the difference, if any between the yield, interest rate, and (expected) return ?

by (320 points)

(Running) yield broadly refers to the return that an investor receives from investing in an investment, such as bonds, property and equity. Yield calculation differs between different asset class.

i.e. Yield is investment specific and it can (and usually do) change with time.

For example:
For bond investment, yield = coupon/ price of bond
For an equity, yield = dividend/ share price
For a property, yield = rental receipt/price paid for property

Interest rate is the interest (thus, the cost) that the borrower has to pay, as a percentage of principle amount borrowed, for borrowing money from a lender. Interest rate is usually defined when loan is taking out (for example, floating or fixed).

(expected) return usually refers to the total return generate by an investment, e.g. for an equity investment, it includes both the expected dividend and the expected increase in share price.

In summary, we usually use interest rate when we refer to costs (interest payment) on borrowing; use (running) yield when we refer to income from an investment and use expected return when we refer to total return from an investment.