The nominal yield, also called the coupon rate, refers to the stated interest rate for a security, such as a bond. Knowing the nominal yield lets you figure out how much you can expect to be paid in interest during the year. However, some bonds may pay interest multiple times per year, such as quarterly or semiannually. To figure the nominal yield, you need to know the par value of the bond and how much interest you receive each year. The par value refers to the amount printed on the face of the bond.
Add the interest payments on the bond during the year. For example, if the bond pays $50 of interest twice per year, the bond pays a total of $100 of interest per year.
Divide the total interest payments by the par value of the bond. Continuing the example, if the bond has a par value of $2,000, divide $100 by $2,000 to get 0.05.
Multiply the result by 100 to calculate that nominal yield as a percentage. Finishing the example, multiply 0.05 by 100 to find the bond's nominal yield is 5 percent.
- The par value is not linked to how much you paid for the bond. For example, a bond with a face value of $2,000 could be traded for $1,900 or $2,100 depending on market conditions.
- The nominal yield does not account for interest compounding or how long it will take you to have your original investment repaid when the bond matures.