Lesson plan
Yield gap
The yield gap or yield ratio is the ratio of the dividend yield of an equity and the yield of a long-term government bond. Typically equities have a higher yield (as a percentage of the market price of the equity) thus reflecting the higher risk of holding an equity. \mbox{Yield Gap} = \frac {\mbox{Yield Ratio of Equity}} {\mbox{Yield Ratio of Bond}} The purpose of calculating the yield gap is to assess whether the equity is over or under priced as compared to bonds. For a given equity, the following cases may be considered: * If the yield gap is numerically small, then equity yield is lower than bond yield implying that the equity is overpriced. * If the yield gap is numerically large, then equity yield is higher than bond yield implying that the equity is cheap.
Article summary
The yield gap or yield ratio is the ratio of the dividend yield of an equity and the yield of a long-term government bond. Typically equities have a higher yield (as a percentage of the market price of the equity) thus reflecting the higher risk of holding an equity. \mbox{Yield Gap} = \frac {\mbox{Yield Ratio of Equity}} {\mbox{Yield Ratio of Bond}} The purpose of calculating the yield gap is to assess whether the equity is over or under priced as compared to bonds. For a given equity, the following cases may be considered: * If the yield gap is numerically small, then equity yield is lower than bond yield implying that the equity is overpriced. * If the yield gap is numerically large, then equity yield is higher than bond yield implying that the equity is cheap.
Key claims
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Discussion questions
- Summarise the article in your own words. Which single claim would you verify first, and why?
- Which claim in this article is most likely to be revised as the sources update? How would you check its current status?
- If two sources disagreed about one of these facts, what would you need in order to trust one over the other?
Bibliography
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Key claims and bibliography are generated from the same tracked claims and sources as the article page.