Financial Terms Capital gains yield

# Definition of Capital gains yield

## Capital gains yield

The price change portion of a stock's return.

# Related Terms:

## Annual percentage yield (APY)

The effective, or true, annual rate of return. The APY is the rate actually
earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking
one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate
has an APY of 12.68% (1.01^12).

## Average cost of capital

A firm's required payout to the bondholders and to the stockholders expressed as a
percentage of capital contributed to the firm. Average cost of capital is computed by dividing the total
required cost of capital by the total amount of contributed capital.

## Bond equivalent yield

Bond yield calculated on an annual percentage rate method. Differs from annual
effective yield.

## Bond-equivalent yield

The annualized yield to maturity computed by doubling the semiannual yield.

## Capital

Money invested in a firm.

## Capital account

Net result of public and private international investment and lending activities.

## Capital allocation

decision Allocation of invested funds between risk-free assets versus the risky portfolio.

## Capital asset pricing model (CAPM)

An economic theory that describes the relationship between risk and
expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk
that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification.
The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security

## Capital budget

A firm's set of planned capital expenditures.

## Capital budgeting

The process of choosing the firm's long-term capital assets.

## Capital expenditures

Amount used during a particular period to acquire or improve long-term assets such as
property, plant or equipment.

## Capital flight

The transfer of capital abroad in response to fears of political risk.

## Capital gain

When a stock is sold for a profit, it's the difference between the net sales price of securities and
their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

## Capital lease

A lease obligation that has to be capitalized on the balance sheet.

## Capital loss

The difference between the net cost of a security and the net sale price, if that security is sold at a loss.

## Capital market

The market for trading long-term debt instruments (those that mature in more than one year).

## Capital market efficiency

Reflects the relative amount of wealth wasted in making transactions. An efficient
capital market allows the transfer of assets with little wealth loss. See: efficient market hypothesis.

## Capital market imperfections view

The view that issuing debt is generally valuable but that the firm's
optimal choice of capital structure is a dynamic process that involves the other views of capital structure (net
corporate/personal tax, agency cost, bankruptcy cost, and pecking order), which result from considerations of
asymmetric information, asymmetric taxes, and transaction costs.

## Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

## Capital rationing

Placing one or more limits on the amount of new investment undertaken by a firm, either
by using a higher cost of capital, or by setting a maximum on parts of, and/or the entirety of, the capital
budget.

## Capital structure

The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
the ratio of debt to equity and the mixture of short and long maturities.

## Capital surplus

Amounts of directly contributed equity capital in excess of the par value.

## Capitalization

The debt and/or equity mix that fund a firm's assets.

## Capitalization method

A method of constructing a replicating portfolio in which the manager purchases a
number of the largest-capitalized names in the index stock in proportion to their capitalization.

## Capitalization ratios

Also called financial leverage ratios, these ratios compare debt to total capitalization
and thus reflect the extent to which a corporation is trading on its equity. capitalization ratios can be
interpreted only in the context of the stability of industry and company earnings and cash flow.

## Capitalization table

A table showing the capitalization of a firm, which typically includes the amount of
capital obtained from each source - long-term debt and common equity - and the respective capitalization
ratios.

## Capitalized

Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
for items with useful lives greater than one year.

## Capitalized interest

Interest that is not immediately expensed, but rather is considered as an asset and is then
amortized through the income statement over time.

## Complete capital market

A market in which there is a distinct marketable security for each and every
possible outcome.

## Convenience yield

The extra advantage that firms derive from holding the commodity rather than the future.

## Cost of capital

The required return for a capital budgeting project.

## Cost of limited partner capital

The discount rate that equates the after-tax inflows with outflows for capital
raised from limited partners.

## Coupon equivalent yield

True interest cost expressed on the basis of a 365-day year.

## Current yield

For bonds or notes, the coupon rate divided by the market price of the bond.

## Dedicated capital

Total par value (number of shares issued, multiplied by the par value of each share). Also
called dedicated value.

## Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.

## Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.

## Earnings yield

The ratio of earnings per share after allowing for tax and interest payments on fixed interest
debt, to the current share price. The inverse of the price/earnings ratio. It's the Total Twelve Months earnings
divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is
shown in percentage.

## Effective annual yield

Annualized interest rate on a security computed using compound interest techniques.

## Efficient capital market

A market in which new information is very quickly reflected accurately in share
prices.

## Equivalent bond yield

Annual yield on a short-term, non-interest bearing security calculated so as to be
comparable to yields quoted on coupon securities.

## Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.

## Flattening of the yield curve

A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.

## Hard capital rationing

capital rationing that under no circumstances can be violated.

See:junk bond.

## Human capital

The unique capabilities and expertise of individuals.

## Indicated yield

The yield, based on the most recent quarterly rate times four. To determine the yield, divide
the annual dividend by the price of the stock. The resulting number is represented as a percentage. See:
dividend yield.

## Issued share capital

Total amount of shares that are in issue. Related: outstanding shares.

## Legal capital

Value at which a company's shares are recorded in its books.

## Liquid yield option note (LYON)

Zero-coupon, callable, putable, convertible bond invented by Merrill

## Long-term debt/capitalization

Indicator of financial leverage. Shows long-term debt as a proportion of the
capital available. Determined by dividing long-term debt by the sum of long-term debt, preferred stock and
common stockholder equity.

## Liquid yield option note (LYON)

Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.

## Market capitalization

The total dollar value of all outstanding shares. Computed as shares times current
market price. It is a measure of corporate size.

## Market capitalization rate

Expected return on a security. The market-consensus estimate of the appropriate
discount rate for a firm's cash flows.

## Net working capital

Current assets minus current liabilities. Often simply referred to as working capital.

## Non-parallel shift in the yield curve

A shift in the yield curve in which yields do not change by the same
number of basis points for every maturity. Related: Parallel shift in the yield curve.

## Nondiversifiability of human capital

The difficulty of diversifying one's human capital (the unique
capabilities and expertise of individuals) and employment effort.

## Opportunity cost of capital

Expected return that is foregone by investing in a project rather than in
comparable financial securities.

## Other capital

In the balance of payments, other capital is a residual category that groups all the capital
transactions that have not been included in direct investment, portfolio investment, and reserves categories. It
is divided into long-term capital and short-term capital and, because of its residual status, can differ from
country to country. Generally speaking, other long-term capital includes most non-negotiable instruments of a
year or more like bank loans and mortgages. Other short-term capital includes financial assets of less than a
year such as currency, deposits, and bills.

## Outstanding share capital

Issued share capital less the par value of shares that are held in the company's treasury.

## Parallel shift in the yield curve

A shift in the yield curve in which the change in the yield on all maturities is
the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one
percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as
well.
Related: Non-parallel shift in the yield curve.

## Pecking-order view (of capital structure)

The argument that external financing transaction costs, especially
those associated with the problem of adverse selection, create a dynamic environment in which firms have a
preference, or pecking-order of preferred sources of financing, when all else is equal. Internally generated
funds are the most preferred, new debt is next, debt-equity hybrids are next, and new equity is the least
preferred source.

## Perfect capital market

A market in which there are never any arbitrage opportunities.

## Perfect market view (of capital structure)

Analysis of a firm's capital structure decision, which shows the
irrelevance of capital structure in a perfect capital market.

## Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.

## Pie model of capital structure

A model of the debt/equity ratio of the firms, graphically depicted in slices of
a pie that represent the value of the firm in the capital markets.

## Planned capital expenditure program

capital expenditure program as outlined in the corporate financial plan.

## Pro forma capital structure analysis

A method of analyzing the impact of alternative capital structure
choices on a firm's credit statistics and reported financial results, especially to determine whether the firm will
be able to use projected tax shield benefits fully.

## Pure yield pickup swap

Moving to higher yield bonds.

## Real capital

Wealth that can be represented in financial terms, such as savings account balances, financial
securities, and real estate.

## Realized compound yield

yield assuming that coupon payments are invested at the going market interest
rate at the time of their receipt and rolled over until the bond matures.

The ratio of the yield spread to the yield level.

## Reoffering yield

In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds
to investors.

## Required yield

Generally referring to bonds, the yield required by the marketplace to match available returns
for financial instruments with comparable risk.

## Riding the yield curve

Buying long-term bonds in anticipation of capital gains as yields fall with the
declining maturity of the bonds.

## "Soft" Capital Rationing

capital rationing that under certain circumstances can be violated or even viewed
as made up of targets rather than absolute constraints.

## Static theory of capital structure

Theory that the firm's capital structure is determined by a trade-off of the
value of tax shields against the costs of bankruptcy.

## Steepening of the yield curve

A change in the yield curve where the spread between the yield on a long-term
and short-term Treasury has increased. Compare flattening of the yield curve and butterfly shift.

## Venture capital

An investment in a start-up business that is perceived to have excellent growth prospects but
does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly.

## Weighted average cost of capital

Expected return on a portfolio of all the firm's securities. Used as a hurdle
rate for capital investment.

## Weighted average portfolio yield

The weighted average of the yield of all the bonds in a portfolio.

## Working capital

Defined as the difference in current assets and current liabilities (excluding short-term
debt). Current assets may or may not include cash and cash equivalents, depending on the company.

## Working capital management

The management of current assets and current liabilities to maximize shortterm liquidity.

## Working capital ratio

Working capital expressed as a percentage of sales.

## Yield

The percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest
paid on a bond or note.

## Yield curve

The graphical depiction of the relationship between the yield on bonds of the same credit quality
but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of
the yield curve (short-term rates greater than long term rates) have preceded the last five U.S. recessions. The
yield curve can accurately forecast the turning points of the business cycle.

## Yield curve option-pricing models

Models that can incorporate different volatility assumptions along the
yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

## Yield curve strategies

Positioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve.

## Yield ratio

The quotient of two bond yields.

Strategies that involve positioning a portfolio to capitalize on expected changes in
yield spreads between sectors of the bond market.

## Yield to call

The percentage rate of a bond or note, if you were to buy and hold the security until the call date.
This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several
years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate,
length of time to the call and the market price.

## Yield to maturity

The percentage rate of return paid on a bond, note or other fixed income security if you
buy and hold it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to
maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at
the same rate.

## Yield to worst

The bond yield computed by using the lower of either the yield to maturity or the yield to call
on every possible call date.

## CAPITAL

The money, raised by selling stock or bonds or taking out loans, that you use to start, operate, and grow a business.

## CAPITAL IN EXCESS OF PAR VALUE

What a company collected when it sold stock for more than the par value per share.

## Capital

The shareholdersâ€™ investment in the business; the difference between the assets and liabilities

## Capital employed

The total of debt and equity, i.e. the total funds in the business.

## Capitalize

To make a payment that might otherwise be an expense (in the Profit and Loss account) an asset
(in the Balance Sheet).

## Capital market

The market in which investors buy and sell shares of companies, normally associated with a Stock Exchange.