The coupon, or percentage that the bond makes, is the nominal yield of a bond—and it always stays the same. The bond may trade up or down, but the nominal yield stays the same.
By the way, "nom" means "name" in Latin. We showed up in class that day.
Example:
A bond has a $1,000 par value, 8% coupon, and is due 2034. In trade, the bond might be worth $800 a year from now, $1,200 six months from now, and so on. The nominal yield, though, is 8%. Is now, and always will be.
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Finance: What is Nominal Rate?32 Views
finance a la shmoop. what is the nominal rate?
hmm well a nominal rate is the named rate of interest on a bond. here's a bond
Eastern Airlines famously bankrupt a zillion years ago. but what's key here is [bond shown]
the nominal rate on the face of the bond right here. that .you see that 11 and 3/4
percent thing? that's the nominal rate the named rate of interest on the bond.
but when the bond was sold it was actually somewhat better than lukewarm
or almost hot offering and it sold for a hundred five cents on the dollar or a
five percent premium to the nominal rate. so investors did not in fact receive the [woman holds bond]
nominal rate because they paid slightly more than the thousand dollars our value
of the bond. they paid a thousand fifty. so instead they received eleven point
seven five divided by 1.05 or about eleven point two percent in interest.
that was the real return they got. the 11 and three-quarters percent? yeah that's [equation shown]
the nominal. rate the named rate and the performance of the bond well, it was not
phenomenal. [graph shows bankruptcy]
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