What is the difference between a bonds coupon rate and its m

What is the difference between a bond’s coupon rate and its market interest rate (yield)?

Solution

A bond’s coupon rate is the actual amount of interest income that the holder of a bond earns each year. The coupon rate of the bond is based on the face value of the bond.

A bond’s market interest rate (yield) is different from its coupon rate. The first difference is that market interest rate or yield is not the actual amount of interest paid on a bond (as a percentage of its face value) but is the effective rate of return that a bond holder earns. The second difference is that unlike coupon, which is based on face value, the market interest rate (yield) is based on the bond’s market value.