Investing / Evergreen
A bond's coupon and its yield answer different questions.
Understand what changes when a fixed payment trades at a new price.
The promised coupon is a cash-flow term; yield relates cash flows to the price paid and, depending on the measure, timing.
Begin with the contract
A conventional fixed-rate bond promises interest on its face value and repayment at maturity, subject to the issuer meeting its obligations. Investor.gov describes credit, interest-rate, inflation, and liquidity risks. The fact that a payment is specified does not make its receipt certain or guarantee the market value of the bond before maturity.
One payment, two purchase prices
Consider a fictional bond with face value 1,000 and an annual coupon of 40. Its coupon rate is 4%. If its market price is 800, annual coupon income divided by price is 5%. At a price of 1,100, the same calculation gives about 3.64%. These are current-yield calculations. They do not include the gain or loss between purchase price and repayment value.
Why maturity matters
A buyer paying 800 might also receive 1,000 at maturity if the issuer pays in full. A buyer paying 1,100 would face a 100 difference in the opposite direction. How far away maturity is changes the annualized significance. Yield to maturity incorporates the timing of contractual cash flows and assumes those payments occur; realized returns can differ because of default, sale timing, and the rates available for reinvesting payments.
Avoid the yield shortcut
A higher displayed yield may reflect a lower price, greater credit risk, different maturity, or a different calculation. Comparing two percentages without their definitions can therefore be misleading. A useful learning table includes price, face value, coupon, maturity, payment frequency, currency, and the precise yield measure. These details describe a bond's mechanics; they do not establish whether it is suitable for a particular investor.
A global perspective
Issuer protections, settlement practices, taxes, and available bond types differ by country. Foreign-currency bonds also expose a reader's home-currency outcome to exchange-rate changes.
Sources & further reading
Investor.gov — Bonds: payments, market prices, and risks ↗Sources checked Oct 15, 2026. Examples are original illustrations. No affiliation with cited organizations.
Make the idea stick.
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What assumption in this guide would change the result in a different situation? Revisit the example and explain that change in your own words.
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