Coupon versus price

A fixed-rate bond pays interest under its contract, while its market price can change. Trading does not reset the coupon. Compare face value, payment schedule, maturity and price, not coupon rates alone.

A current-yield example

An annual coupon of 40 on a bond priced at 800 gives a current yield of 5%. This excludes the difference between purchase and redemption prices and does not capture reinvestment. Yield to maturity addresses a broader calculation.

Compare comparable bonds

For fixed cash flows, lower prices generally correspond to higher yields. Bonds with different maturities, credit risks or currencies are not directly comparable. A higher yield can reflect greater risk.

Same coupon, different prices

For a hypothetical annual coupon of 30, prices of 1,000 and 900 give current yields of about 3% and 3.33%. The example isolates the denominator's effect. It does not evaluate creditworthiness, reinvestment or the fair value of any actual bond.

Source and reading notes

This is an independently written educational overview based on the ATFX reading linked below. Examples are illustrative, not live quotes or forecasts. It does not reproduce the original article or imply endorsement by its author.