• Profile photo of John Moffat says

      Don’t worry too much about it.

      It is just that some investments give low returns from year to year (in terms of the interest payment or (in the case of shares) in terms of dividends) but the market value grows.

      On the other hand there are other investments that give high returns from year to year, but the market value doesn’t grow (or might even fall).

      Overall, you would expect the total return (cash each year + capital growth) to be similar, but investors have the choice between investments giving high return and low capital growth or low returns but high capital growth.

      You don’t need to worry about numbers here at all.

  1. Profile photo of John Moffat says

    The redemption yield takes into account not just the interest each year but also the “gain or loss” on redemption (repayment) – i.e. the difference between the price to pay now (market value) and the amount repaid on redemption.

      • Profile photo of John Moffat says

        @atiq422, There is a capital loss, but this is not the redemption yield for two reasons.

        Firstly it is the ‘overall’ return including the interest that is receivable.
        Secondly it is the annualised return.

        Although you cannot be expected to calculate it, it is in fact just the IRR of the flows.

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