What is the yield of capital?

Capital gain yield (CGY) refers to profits or losses that the investor earns from a financial instrument that appreciates or depreciates the price at the time the investor has it. In other words, CGY denotes the rate of change in the price of the financial instrument. Many investors have decided to calculate the CGY investment tool because the formula usually provides a good hint of how much price the tool varies; This helps the investor to determine which tools are good investment elections. The yield of capital profits is commonly expressed as a percentage.

Calculation of CGY

The formula for calculating the yield of capital gains is: CGY = (P1 - P0) / P0. P0 represents the original price of the financial tool, while P1 means the current price or selling price of the tool. For example, if an investor buys a share of $ 10 (USD) and later sells it for $ 15, the capital profit yield would be (15 - 10)/10 = 5/10 or 50 percent.

There are dies how to express the CGY formula. It can be mentioned as (Δp) / P0 where Δp representsChanging the price. The reconstruction of the original formula gives (P1 / P0) - 1.

The yield from capital profits is not cumulative, so if the returns are known for several periods of time, it is not possible to find a yield for the whole time only by adding all revenues of different periods. For example, there is no way to determine the annual yield of capital profits only by adding all monthly revenues per year. Instead, the initial price at the beginning of the year must be known and involved in the CGY formula at the end of the year to find the annual yield.

other factors are not included

The yield of capital profits does not represent the total income of the investment or takes into account cash flows such as dividends. As a result, the financial tool That has a negative CGY that could still generate profits for the investor. The revenues of capital gains are equal to the total return if the financial instrument does not generate any cash flow.

for example, afterKUD The investor originally pays 60 USD per share and later sells it for $ 58, its CGY would be negative: (58 - 60) / 60 = -3.33 percent. However, if he receives a dividend of $ 5 during the posture period, he would still be able to prove a total profit of $ 3.

Although some factors that are excluded from the formula can be CGY still beneficial formula for investors who are trying to calculate price fluctuations for a certain period of time.