
Debt Securities  Yield
Now that you know the different flavors of government bonds, it is time to learn how yields are computed.
Nominal Yield (Coupon Rate)
 The interest rate defined on the coupon.
 This is generally the interest rate you receive if:
 you acquired the bond at par (that is, at neither a discount nor a premium to its par value)
 there is no call feature on the bond
 you don't reinvest coupon payments and,
 you are resolved to hold the bond until maturity
 In reality, it is almost certainly not your actual interest rate.
 Factors in the bond's market price, which is generally not the same as par value.
 Consider the following application:
Look Out!
Say you bought a $1,000 par value bond with a coupon rate of 10% per year. Let\'s not worry about timing of payments right now and just assume that, on the last day of the year, you get your $100 interest payment ($1,000 x 10% = $100). But wait  you did not buy that bond directly from the issuer. You bought it on the open market for $750, so your yield is 13.3% ($100/$750). You still get the same $100, but on an investment of $750, not $1,000.
Yield to Maturity
Considers the current market price, the coupon rate and the time to maturity and assumes that interest payments are reinvested at the bond's coupon rate. This is the most accurate, and most widely quoted, measure of return on a bond.Exam Tips and Tricks
You may need to identify yield to maturity on the Series 7 exam, but you will probably not need to perform the complex calculation.
Computing Tbill Discount Yield
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RELATED TERMS

Coupon Rate
The yield paid by a fixed income security. A fixed income security's ... 
Par Value
The face value of a bond. Par value for a share refers to the ... 
At Par
A term that refers to a bond, preferred stock or other debt obligation ... 
Effective Yield
The yield of a bond, assuming that you reinvest the coupon (interest ... 
Discount Bond
A bond that is issued for less than its par (or face) value, ... 
Coupon
The annual interest rate paid on a bond, expressed as a percentage ...
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