couponyield

Coupon yield, also known as the coupon rate or nominal yield, is the annual interest payment a bondholder receives expressed as a percentage of the bond’s face value (par value). It is determined by the bond’s fixed coupon rate set at issue and does not change with moves in the bond’s market price.

Calculation is straightforward: coupon yield = annual coupon payment / par value. For example, a bond with par value of 1,000 and a 5% coupon pays 50 dollars per year in coupons, so its coupon yield is 50/1000 = 5%. If coupons are paid semiannually, you might receive 25 dollars twice a year, but the annual coupon remains 50 dollars, keeping the coupon yield at 5% based on par. The calculation uses the par value, not the price at which the bond trades.

Coupon yield differs from other measures of return. Current yield uses the bond’s current market price in the denominator (annual coupons divided by price), so it fluctuates as the price moves. Yield to maturity accounts for all cash flows until maturity, including any gain or loss relative to the par value and the reinvestment of coupons. Zero‑coupon bonds have a coupon yield of 0%, since they pay no periodic interest, though their yield to maturity can be positive due to price appreciation to par.

Uses and limitations: coupon yield provides a simple way to compare income generation across bonds with the same par value, but it does not reflect actual return if the bond is bought at a premium or discount or held to maturity. It is most meaningful when comparing bonds with similar par values and coupon structures.