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Capital Gains Yield Formula | Calculation (with Example) - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
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clicking the Bell ican Friends today we are
learn a concept which is known as
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capital gain yield formula now what
exactly this is let's let's get into the
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same with the capital yield yield
formula is P 1 minus p 0 divided by p 0
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so we have couple of notations over here
but we need to understand the formula
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see at the very first and what is this
formula all about see we use this capital
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and write for you capital gain yield
formula this formula when we want to
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know how much return we will get
how much the return will get only on the
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basis of the appreciation or
depreciation of the stock see her the
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formula for the capital gain yield the
capital gain yield formula is equal to
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your P1 -P0 divided by p 0
this is going to be your formula over
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here you if you see the p 0 is the price
of the stock when we invested into it
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and P 1 over here is the price of the
stock after the first period so the
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capital gain yield is basically
it's the return sort of you let's
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understand with the help of an example
let's take a practical example to
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illustrate how can we how we can do the
capital gain yield calculation so
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basically it's for percentage let's say
Ishita this girl called Ishita wants
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to see how much she has earned on a
particular stock only on the basis of
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the capital appreciation
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capital appreciation now she has seen
that when she had bought the stock the
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price was a-standing at let's say at
1:05 and now after 2 years the price
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of the stock has appreciate appreciated
- let's let's say this is price p1 and
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this is price p0 the price p1 has turned
out to be $120 per share so what
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is the capital yield on the particular
stock if we can see that we have all the
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information the capital gain yield
calculation all we need to do is just to
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put in the data into the formula for the
capital gain yield so of a capital gain
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yield formula
is going to be P1 - P0 divided by
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P0 so let's put down the numbers 120-
105 divided by 10 105 that's
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P0 so in a way we get 15 divided by 10
5 is 14.29%
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in terms of percentage
so this means that by using this formula
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we understand that Ishita has got a
14.29% capital
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gains after 2 years of investments now
if the company offers let's say dividend
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let's say if they come me offers
dividend we can also calculate the
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dividend yield and find out the total
return on the investments let's
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understand the explanation part of this
particular formula see capital gain
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yield formula is used to find out
whether the investor
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whether the investor would get any sort
of return on the stock any sort of
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return on the stock price so the formula
of the capital gain uses the rate of
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change as you can see P1 - P0
formula the rate of the change formula
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which is always used to find out the
return on the investment now in this
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case we look at the beginning of the
stock that is the beginning
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a stock price that is P0 and the stock
price and the stock price at the end of
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the period so basically the difference
and then we'll find out the positives of
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the difference on the basis of the
beginning stock price that as we are
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dividing the beginning stock price the
capital gain yield formula again it's
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it's it's if you don't want to go for
this one as a CGY then you can also use
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something like the cgy can be written as
your p1 divided by p0
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but this whole thing will be in terms of
bracket and you need to deduct minus one
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so the whole thing minus one
once you get the answer
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so you can see that 120 divided by 105 whatever answer you receive
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you will do minus one so let's do it so
that we have the idea how this exactly
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will go about so 120 /105
now this thing -1
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14.29% right so this is
the another way by which you can
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calculate we can derive this formula
from the first formula itself the first
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formula is P 1 minus p 0 divided by p 0
or the capital gain you can say that p 1
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divided by your p 0 right
you need to deduct from this less p 0
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divided by p 0 or capital gains can be
written as this is another expansion
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from that or finally it can be written
as p 1 divided by p 0 p 1 divided by p 0
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less 1 which is as simple as that
now what is exactly the use of this
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particular formula see for every
investor the capital gain for every
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investor the capital gain is the
important measure see many companies
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don't pay dividends and in that case the
investor can only get the capital gain
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yield
basically as the return
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as the return on investments now since
the capital in yield can be positive as
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well as negative it affects the total
return of the investor which they like
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for example it is this guy called mr. a
mr. e and he gets a total return of
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let's say 25% from the stock now
it can be the result of the negative
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negative capital yield of minus 5%
and end dividend yield and
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dividend yield standing at let's say 30%
right so here's what we consider
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while calculating the total return is
the
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the capital gain
and the second thing that we consider is
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the dividend yield right we already know
the capital gain yield calculation not
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to calculate the dividend yield
is equal to your annual dividend
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/ your price of the share but this is
your calculator for your capital gain
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yield formula let's say we'll put some
of the DATA's over here and we'll
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understand let's say the p1 prices 150
and your p0 price is let's say hundred
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so we all know the return is going to be
50% right so our previous price let's
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say is remaining the same as the number
goes down your your data your the your
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yield will go down and as the number
will move up your yield will move up so
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we can say that keeping the p0 as
constant
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if you p1 if this increases then your
ratio that is the yield you can say not
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the ratio we can say the yield also
increases but keeping this
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as again constant if this portion that
is the p1 that is a prize at the end of
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the year if this decreases then they
yield basically sorry yeah if they if
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the price decreases then they yield also
decreases so basically you can say there
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is a direct relationship between the p1
that is the price of the shell and the
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yield as a percentage so that's it for
this particular topic if you have
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