Nominal Yield

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DEFINITION of 'Nominal Yield'

The coupon rate on a bond. The nominal yield is the interest rate (to par value) that the bond issuer promises to pay bond purchasers. This rate is fixed and applies to the life of the bond. Nominal yield is sometimes referred to as nominal rate, coupon yield or coupon rate.

BREAKING DOWN 'Nominal Yield'

The nominal rate does not always represent the overall return. Buyers who pay a premium (more than the coupon price) for a given bond will receive a lower actual rate of return than the nominal rate, while investors who pay a discount (less than the coupon price) will receive a higher actual rate of return. It's also worth noting that bonds with high coupon rates tend to get called first (when callable), as they represent the issuer's greatest liability relative to bonds with lower yields.

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RELATED FAQS
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    Simply put: yes, you will. The beauty of a fixed-income security is that the investor can expect to receive a certain amount ... Read Full Answer >>
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  5. How does the bond market react to changes in the Federal Funds Rate?

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