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What is Nominal Yield?

by FIIG Research | Feb 02, 2010

The nominal yield is the return based on annual coupon payments as a percentage of the face value of the security. Also known as the coupon rate, this does not change throughout the life of the security. 

For example, a 6% fixed rate bond will pay a coupon of $6 a year based on a $100 investment.

Coupon payments are made at regular intervals by the issuer to the investor, normally expressed as a percentage per annum. Coupons can be fixed or floating. This means they are either a set or fixed interest rate determined at the time of issue of the security, or they can vary with respect to some form of floating benchmark, normally the bank bill swap rate (BBSW). Coupons are normally paid on either a quarterly, semi-annual or annual basis.

Australian floating rate bonds generally pay a quarterly coupon while fixed rate bonds mostly pay a semi-annual coupon. Fixed rate bond semi-annual coupon payments are a flat annual coupon payment divided by two. There is no adjustment for the number of actual days in the coupon period. So if the coupon is 7% paid on a semi-annual basis, the holder receives $3.50 per $100 of face value every six months.