Cash Flow Yield

Monthly rate of return of a mortgage-backed security, based on principal and interest mortgage payments and an estimated rate of loan prepayment. Cash flow yield is the monthly Internal Rate of Return of a mortgage-backed security, assuming a standard rate of mortgage prepayments. The cash flows from mortgages are discounted to their net present value, producing the rate of return that approximates the actual return to the holder. Prepayment assumptions are adjusted according to differing types of collateral, for example, Federal Housing Authority insured loans or conventional mortgages. Because some mortgage pools are paid off faster than others, cash flow yield offers a more realistic way to price mortgage backed securities than the 12-year prepayment assumptions prevalent in the 1970s.

Ratio of net cash flows from operating activities to net income. Used to measure the ability of a company to generate operating cash flows in relation to net income.