The coupon yield of the bond is the guaranteed income of the investor, which is paid to the issuer at the rate of one valuable paper. It is indicated in percent per annum.
Coupon yield: Examples of calculations
Take a bond of some company with a par value of 1000 rubles. According to it, the Issuer undertakes to pay 100 rubles annually. Thus, the coupon income is 100 rubles to divide by 1000 rubles and multiply by 100% equals 10% per annum.The coupon can be specified immediately as a percentage. In practice, this happens most often. On the other hand, payments in some cases are made not alone, but twice a year. Then from the coupon yield can be determined in the opposite direction, the size of each individual percentage payment.
For example, the same bond is given with a denomination of 1000 rubles with a coupon yield of 10 percent per annum. Payments are made twice a year. Then 1000 rubles multiplied by 10% and divided into two equals 50 rubles every six months.Differences of coupon and current yield
The coupon yield of the bond should be distinguished from its current profitability. The fact is that the bond is never sold at par - its value determines the market. As a result, the current yield is a more objective indicator: in contrast to the coupon, it is calculated on the basis of current quotations for valuable paper.
Suppose real interest rates in the country are much lower than 10% of annual coupon income in the emission prospectus. Then the bond will be more expensive from the very beginning than its nominal value.
Let's say for clarity, 1050 rubles. Then the current yield will be 100 rubles coupons divided by 1050 rubles and multiply by 100% equal to 4.76 percent. Although at the same time, the formal coupon yield remained the same, as indicated in the documentation for valuable paper.
Possible reverse option. Suppose the bond is released with the yield of only 3 percent per annum and the denomination to the same 1000 rubles. Then the coupon yield will remain equal to 3%, but the market, of course, will not be inflamed of such a situation and will want more money. As a result, the bond will be bargained for example, 600 rubles. Then its current yield will amount to 30 rubles coupons to divide the quotes for 600 rubles and multiply by 100 percent equal to 5 percent per annum.Of course, such a situation with a large discount, discount when buying, is possible only when the valuable paper is released for a very long time, because otherwise the real yield of the bond will be very high, because the investor receives not only a coupon payment, but the whole Nominal!
Complete and final benefits from ownership of bonds are customary to return to redemption. Just, in contrast to coupon returns, it takes into account all: both the difference between the purchase price and the denomination and periodic payments.