Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What does yield represent in the context of securities?

1. The long-term capital gains of an asset

2. The total return from selling the asset

3. The income produced by a security

4. The market price of securities

The correct answer is: The income produced by a security

Yield in the context of securities represents the income produced by a security, often expressed as a percentage of the investment's cost or market value. This income can come from interest payments on bonds or dividends from stocks. For investors, yield is a key metric because it indicates how much cash flow they can expect relative to the price of the security, helping them assess the potential profitability of their investments. Understanding yield is crucial for comparing different securities and evaluating their returns. The correct interpretation of yield focuses on income rather than capital appreciation or total sales revenue. This distinguishes it from long-term capital gains, which refer to the increase in value of an asset over time, and from the total return that includes both income and capital gains. The market price of a security, while relevant, does not represent yield; rather, it is the current trading value in the market, separate from the income generated by holding the security.