Nominal yield is the stated coupon rate on a bond — the interest rate printed on the bond certificate that determines the annual coupon payment. It is always calculated as a percentage of par value ($1,000 for most bonds), regardless of the current market price.
Formula: > Annual Coupon = Nominal Yield × Par Value
Example: A bond with a 7% nominal yield pays 7% × $1,000 = $70 per year ($35 every 6 months).
Key facts: - The nominal yield never changes once the bond is issued — it is a fixed rate. - The nominal yield = current yield only when the bond is trading at par. - The nominal yield is the least useful yield measure because it ignores the current market price.
Nominal yield in the yield hierarchy:
| Bond trades at | Yield relationship | |---|---| | Discount (below par) | Nominal < Current yield < YTM | | Par | Nominal = Current yield = YTM | | Premium (above par) | Nominal > Current yield > YTM |
Zero-coupon bonds: Nominal yield = 0 (no coupon payments); return comes entirely from the price discount (accretion to par value).
> Exam tip: Nominal yield is just the coupon rate — it doesn't change with market conditions. For the Series 7 and CFP®, understand that nominal yield alone tells you almost nothing useful about the bond's actual return; YTM is the meaningful measure.