The return on an investment resulting from the appreciation of an asset’s price, divided by the initial purchase price, represents the yield derived from capital gains. This metric quantifies the profit earned solely from the increase in value, excluding any dividends or interest received. As an illustration, consider an asset purchased for $100 and subsequently sold for $110. The capital gain is $10, and when this is divided by the initial purchase price of $100, the result is a yield of 10%. This provides a straightforward percentage measure of the profitability arising from price appreciation.
Understanding this yield is important for evaluating investment performance, comparing it against other opportunities, and making informed decisions about asset allocation. Analyzing this metric, in conjunction with dividend yields or interest income, gives a holistic perspective on the overall return profile of an investment. Historically, it has served as a key indicator in assessing the effectiveness of investment strategies focused on capital appreciation and has played a significant role in portfolio construction and risk management.
