PRICE AND YIELD

Price and yield are inversely related:

Yield as we know is the income generated in the form of dividends or the effective rate of interest paid on a bond. It can be calculated by the coupon rate divided by the bonds market price, yield therefore is expressed as the annual rate of return as a percentage. The term convexity is used in the relationship between price and yield, it is the measure of the curvature in a yield chart, positive convexity implies a curvature that opens upward, and negative convexity opens downwards. Investors use yield to measure performance of their investments, and it can be used to make comparisons between other investments or securities. A key factor in the price and yield relationship is that for every yield there is a price, and for every price there is a yield.