What are the differences between Coupon and Yield?

Coupon Rate:

Definition: The coupon rate is the annual interest rate paid by the bond issuer on the bond's face value. It is fixed and does not change throughout the bond's life.
Formula: Coupon Rate =Annual Coupon Payment /Face Value of the Bond*100
Example: For a bond with a face value of ₹1,000 and an annual coupon payment of ₹50, the coupon rate
Coupon Rate =50/1000*100 = 5%

Yield:

Definition: Yield, specifically the current yield, reflects the bond's annual return based on its current market price. It varies with bond price fluctuations.
Formula: Current Yield=Annual Coupon Payment/Current Market Price of the Bond
Example: If the same bond's market price changes to ₹1,100, the current yield
Current Yield = 50/1100 ≈ 4.55%

Key Differences:

Aspect	Coupon Rate	Yield
Definition	The coupon rate represents the fixed annual interest rate a bond pays based on its face value.	YTM is the effective rate of return of a bond at a particular point in time, considering the coupon payments and the bond’s current market price.
Calculation	Calculated by dividing the annual coupon payment by the face value of the bond.	Calculated based on the coupon payment and the bond’s current market price.
Fixed or Variable	Fixed irrespective of changes in the bond’s price.	Varies with changes in the bond’s market price.
Impact of Price Change	Unaffected by fluctuations in the bond’s purchase price.	Changes with the bond’s market price.

5paisa provides detailed insights and real-time data on both coupon rates and yields, helping investors distinguish between these concepts. The platform offers tools and calculators to track how market price changes affect yields, enabling informed investment decisions. 5paisa’s resources ensure that investors can accurately assess the returns on their bond investments.