What is the difference between the coupon rate and the yield? - ProProfs Discuss
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What is the difference between the coupon rate and the yield?

Asked by Layla, Last updated: Oct 31, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Coupon rate refers to the interest payments the bond issuer makes to the investor. Yield refers to the return on a bond and includes both the interest income paid each year as well as the theoretical gain or loss each year based on the difference between the investors purchase price and the eventual maturity price of the bond.

When interest rates rise, bond prices fall and yields rise. Nursing the approximate yield to maturity to better understand how yield is affected by both interest payments and price, ill use the following example: assume you want to buy a bond that has a coupon rate of 5% and the general level of interest rates is currently 5% and the price of the bond is trading at 100.

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