Nominal yield

The interest rate stated on the face of a bond, it represents the percentage of interest to be paid by the issuer on the face value of the bond.

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This is sometimes referred to as the coupon rate.

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Annual dollar amount of income received from a fixed-income security divided by the Par Value of the security and stated as a percentage. Thus a bond that pays $90 a year and has a par value of $1,000 has a nominal yield of 9%, called its coupon rate. Similarly, a preferred stock that pays a $9 annual dividend and has a par value of $100 has a nominal yield of 9%. Only when a stock or bond is bought exactly at par value is the nominal yield equal to the actual yield. Since market prices of fixed-income securities go down when market interest rates go up and vice versa, the actual yield, which is determined by the market price and coupon rate (nominal yield), will be higher when the purchase price is below par value and lower when the purchase price is above par value. See also Rate of Return.

Nominal yield is the coupon rate of a fixed income security, which is a fixed percentage of the par value. Unlike current yield, it does not vary with the market price of the security.

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