Why This Matters
When someone says a treasury bond “yields 21%” and a BAI share “yields 10%,” are they talking about the same thing? No — and the difference matters enormously. Yield (rendimento) is the universal language of investment returns, but it comes in several dialects. Confusing them leads to poor investment decisions. This lesson ensures you can compare any two investments on a level playing field.
Types of Yield
1. Coupon Rate (Taxa de Cupão)
The simplest measure — the annual interest payment as a percentage of the bond’s face value. It is fixed when the bond is issued and never changes.
A bond with Kz 1,000,000 face value and a 20% coupon rate pays Kz 200,000 per year in interest, regardless of what happens to its market price.
Limitation: The coupon rate tells you nothing about your actual return if you bought the bond at a price different from face value.
2. Current Yield (Rendimento Corrente)
Annual coupon payment divided by the bond’s current market price. This tells you the income return based on what you actually paid.
Formula: Current Yield = Annual Coupon ÷ Market Price × 100
Example: A bond with a Kz 200,000 annual coupon trading at Kz 980,000: Current Yield = 200,000 ÷ 980,000 × 100 = 20.41%
If the same bond traded at Kz 1,050,000 (premium): Current Yield = 200,000 ÷ 1,050,000 × 100 = 19.05%
Key insight: When you buy a bond below face value (at a discount), your current yield exceeds the coupon rate. When you buy above face value (at a premium), your current yield is below the coupon rate.
3. Yield-to-Maturity (YTM / Rendimento até ao Vencimento)
The most comprehensive bond yield measure. YTM accounts for the coupon payments, the price you paid, the face value you will receive at maturity, and the time remaining. It represents your total annualized return if you hold the bond to maturity and reinvest all coupons at the same rate.
Example: A 5-year bond with face value Kz 1,000,000, 20% coupon (semi-annual), purchased at Kz 980,000:
Using the Bond Yield Calculator, the YTM is approximately 20.6%. This exceeds both the coupon rate (20%) and the current yield (20.41%) because you also earn a capital gain when the bond matures at Kz 1,000,000 (Kz 20,000 more than you paid).
Key insight: YTM is the “true” yield for bonds. It is what professionals use and what you should use when comparing bond investments.
4. Dividend Yield (Rendimento de Dividendos)
The stock equivalent of current yield — annual dividend per share divided by the current share price.
Formula: Dividend Yield = Annual Dividend per Share ÷ Share Price × 100
Example: BAI pays Kz 125 annual dividend, share price Kz 100,500: Dividend Yield = 125 ÷ 1,250 × 100 = 10.0%
Important: Dividend yield does not capture capital gains. A stock paying 10% dividend that also appreciates 15% delivers 25% total return — but the dividend yield only shows 10%.
5. Total Return (Rendimento Total)
The most complete measure for any investment — all income plus all capital gains, expressed as a percentage of your initial investment.
Formula: Total Return = (Income + Capital Gain) ÷ Initial Investment × 100
Example: You buy BAI shares for Kz 1,000,000. Over one year, you receive Kz 100,000 in dividends and the shares appreciate to Kz 1,150,000 (capital gain of Kz 150,000). Total Return = (100,000 + 150,000) ÷ 1,000,000 × 100 = 25.0%
6. Real Yield (Rendimento Real)
Any yield adjusted for inflation. This is what actually matters for your purchasing power.
Approximate formula: Real Yield ≈ Nominal Yield - Inflation Rate
Example: A bond yields 21% nominal. Inflation is 15.7%. Real Yield ≈ 21% - 15.7% = -6.8%
This bond is losing purchasing power, despite the impressive nominal yield. For a more precise calculation, use the Fisher equation: Real Yield = (1 + Nominal) / (1 + Inflation) - 1 = (1.21 / 1.278) - 1 = -5.3%.
7. After-Tax Yield
Your yield after the Imposto sobre Aplicação de Capitais (IAC):
- Bonds ≤ 3 years: 10% IAC on interest income
- Bonds > 3 years: 5% IAC on interest income
- Dividends: 10% IAC
- Capital gains: 10% IAC
Example: A 5-year bond yielding 21% before tax: After-tax yield = 21% × (1 - 0.05) = 19.95%
Worked Example: Comparing Three Investments
Isabel has Kz 3,000,000 and is comparing three options:
| Metric | 3-Year OT (at par) | BAI Stock | 12-Month BAI Deposit |
|---|---|---|---|
| Nominal yield | 21% (coupon) | 10% dividend + ~15% capital gain = ~25% | 16% |
| After-tax yield | 19.95% (5% IAC) | ~22.5% (10% IAC on both) | 14.4% (10% IAC) |
| Real yield (after inflation 15.7%) | -7.9% | -5.3% (estimated) | -13.4% |
| Risk level | Low | Medium-High | Very Low |
| Liquidity | Moderate | Moderate | High |
Key insight from this comparison: None of these investments currently delivers a positive real return. The deposit loses the most purchasing power (-13.4%). The stock potentially loses the least (-5.3%) but carries the highest risk. The bond sits in the middle.
This does not mean investing is pointless — it means investing in Angola is about minimizing real losses while positioning for nominal wealth accumulation. As inflation moderates (which the BNA is targeting), real returns will turn positive.
Key Takeaways
- Coupon rate is fixed and tells you the bond’s stated interest — not your actual return
- Current yield adjusts for market price — use it for quick income comparisons
- Yield-to-maturity (YTM) is the gold standard for bond comparison — use it always
- Dividend yield shows stock income but misses capital gains — use total return instead
- Real yield (after inflation) tells you what actually happens to your purchasing power
- After-tax yield is what you actually keep — always factor in IAC rates
- In Angola’s current environment, minimizing real losses is the primary objective
Common Mistakes
Comparing coupon rates to deposit rates — A 20% bond coupon and a 16% deposit are not directly comparable. The bond’s YTM (considering purchase price) and the deposit’s effective rate (considering compounding) are the correct numbers to compare.
Ignoring tax differences — The difference between 5% IAC (long bonds) and 10% IAC (short bonds, deposits, dividends) is significant over time. Prefer long-term bonds for tax efficiency.
Chasing the highest nominal yield — A 25% equity return sounds better than a 21% bond yield, but the equity return is uncertain while the bond coupon is contractual. Risk-adjusted comparison is what matters.
What’s Next
Many Angolan investors hold both Kwanza and USD-denominated assets. The next lesson covers foreign exchange basics — how the AOA/USD rate works, why it matters for your portfolio, and how to think about currency exposure.
Next Lesson: FX Basics — Understanding the Kwanza and Dollar
Calculate bond yields with the Bond Yield Calculator. Find your real returns with the Real Return Calculator.