Gilt yield
Gilt yields express the return on a gilt as an annual percentage.
Gilt yields express the return on a gilt (government bond) as an annual percentage. There are two ways to do this. The income yield just looks at the annual coupon as a percentage of the price. So if the annual coupon is, say, £5 and the price is £90, the income yield is (5/90) x 100%, or 5.5%. This is useful to investors only interested in the income return.
However, for a more complete picture you can also use the gross redemption yield, or yield to maturity. This takes account of any capital gain or loss that arises between the date of purchase and the point the gilt is bought back by the government.
The actual calculation is fiddly, but as a rough approximation let's say the earlier gilt matures in five years' time. The annual capital gain to the holder is about £2 per year since all gilts redeem at a fixed £100. So the total annual return is ((£5 + £2)/£90) x 100%, or 7.8%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This estimated figure does not take account of the time value of money, which would slightly reduce the number in practice.
-
Adidas, Nike or Jordans - could collectable trainers make you rich?
The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
By Chris Carter Published
-
Early bird ISA investors flock to global funds, India and the US
There’s been an increase in investors maxing out their ISA at the start of the new tax year. But where are they putting their cash and why does it make sense to be an early bird investor?
By Vaishali Varu Published