What does the flat yield method primarily focus on when evaluating investments?

The flat yield method primarily focuses on the ratio of the annual coupon payment to the market price of the investment. This method provides a straightforward calculation that helps investors understand the income-generating potential of a bond or other fixed-income security relative to its current market price. By emphasizing this ratio, investors can make quick comparisons between different investment options, allowing them to effectively assess which investments offer better yield based on their market pricing.

This approach is particularly valuable in fixed-income investing, where yield can fluctuate due to changes in market conditions, interest rates, and other economic factors. The flat yield serves as a crucial metric for assessing the attractiveness of a particular bond without getting into the complexities of total returns, which would also include capital gains or losses, or any risks associated with the investment, such as credit risk or interest rate risk. The focus is purely on the income yield relative to the price, making it an essential tool for fixed-income investors when evaluating potential investments.