Nominal yield
Also known as: coupon rate, stated yield
Nominal yield is a bond's stated coupon rate — the fixed annual interest divided by par value. A bond paying $60 per year on $1,000 par has a 6% nominal yield, regardless of its current market price.
Nominal yield is simply a bond's coupon rate: the annual interest payment divided by the bond's par (face) value. The formula is nominal yield = annual interest ÷ par value. A bond that pays $60 of interest per year on $1,000 par has a nominal yield of 6%. Because both the coupon and par value are fixed at issuance, the nominal yield never changes over the life of the bond.
That fixed quality is what distinguishes nominal yield from every other yield measure. Current yield (annual interest ÷ market price), yield to maturity, and yield to call all move as the bond's market price moves. Nominal yield ignores the market entirely — it describes what the issuer promised to pay, not what an investor actually earns at today's price.
The relationships among these yields signal whether a bond trades at a discount, at par, or at a premium. At par, all yields equal the nominal yield. At a discount, yields rank nominal < current < YTM < YTC; at a premium the order reverses. Recognizing these orderings lets you answer many bond questions without any calculation.
Yield types are heavily tested on the SIE, Series 7, and Series 66 exams. Be able to compute nominal yield, distinguish it from current yield and yield to maturity, and rank the yields for discount and premium bonds.
Key takeaways
- Nominal yield = annual interest ÷ par value — it is the bond's stated coupon rate.
- It is fixed at issuance and never changes, no matter where the bond trades.
- Current yield, YTM, and YTC vary with market price; nominal yield does not.
- For a discount bond, nominal yield is the lowest yield; for a premium bond, it is the highest.
- The SIE, Series 7, and Series 66 exams test nominal yield alongside the other yield measures and their relationships.