Coupon versus yield
Returns also depend on purchase price, holding period, fees and redemption.
FinFly Explains / Economy
What bonds are
A bond is a debt security. The issuer promises payments under its terms; the buyer bears the risk of non-payment.
Illustration
A bond with 1,000 face value and an annual coupon of 80 bought for 950 has a current coupon yield of about 8.42%. This is not yield to maturity or a forecast.
Three risks
Default, falling market price and difficulty selling at an acceptable price.
Before buying
Read the prospectus: currency, payment schedule, claim ranking and early redemption rights. A high coupon alone does not establish value.
Method
Primary sources
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