Yield gap

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Yield gap, or yield ratio, compares the dividend yield of a stock with the yield of a long‑term government bond. Since stocks usually offer a higher yield to reflect higher risk, the gap helps show whether a stock is over‑ or under‑priced relative to bonds. How to calculate: Yield Gap = (Dividend yield of the stock) / (Yield on the government bond). A larger gap means the stock’s yield is high relative to the bond; a smaller gap means the bond’s yield is more attractive. Yields change over time, so the gap is a snapshot rather than a fixed rule.