How do coupon rate, current yield and yield to maturity differ?

Write the contract before the percentages

A yield label is incomplete without its price, schedule and convention. Start with face value, coupon amount, settlement timing, principal repayment and any early-redemption feature. State whether the price includes accrued interest and fees. Then name the particular calculation rather than using yield as if all measures were interchangeable.

Investor.gov’s bond glossary and corporate-bond bulletin describe these different measures. The original worksheet below chooses a single annual payment so the arithmetic is transparent. Its hypothetical rates and price do not describe a current market opportunity.

Three numbers from one invented contract

Suppose an invented bond has $1,000 face value and a $50 annual coupon. It is purchased just after the prior coupon, exactly one year before maturity, for $980. The only remaining payment is $1,050 at the end of that year. Stipulate no accrued interest, fees, taxes, default or call.

Coupon rate is $50 ÷ $1,000 = 5%. Current yield is $50 ÷ $980, approximately 5.1020%. The one-year yield to maturity solves $980 × (1 + y) = $1,050, giving approximately 7.1429%. The extra $20 principal repayment relative to the $980 purchase price explains why the last measure exceeds current yield.

Read what each number leaves out

The coupon rate does not tell you the price paid. Current yield includes the price denominator but does not, by itself, count the change from purchase price to maturity principal. In this one-payment example, the final payment contains both coupon and principal, so no intermediate coupon needs a reinvestment assumption.

For a bond with several remaining payments, yield to maturity is found by discounting the full schedule consistently. Receiving that schedule and holding to maturity does not by itself guarantee an equivalent compounded wealth-growth rate: reinvesting intermediate coupons at the quoted yield is an additional assumption for that interpretation. Different reinvestment rates can change ending wealth.

Extend the worksheet without changing its meaning

If an issuer can repay early, identify the applicable redemption terms and any yield-to-call or yield-to-worst convention shown. Do not assume the original maturity payment will necessarily occur. Similarly, a displayed yield may omit the investor’s taxes or transaction expenses; ask which cash flows and price components the calculation actually includes.

Keep the quoted calculation separate from an eventual account result. An early sale introduces an unknown sale price, and a missed payment changes the realized cash flows. Comparing two bonds on coupon alone would ignore price, timing and risk. Comparing only the largest displayed yield would still leave those questions unresolved.

Method, sources, and limits

The three percentages are original hypothetical arithmetic, checked on 26 October 2026. The example deliberately excludes complications rather than claiming they are absent from real bonds. It selects no security and provides no personalized income target, reinvestment strategy, tax conclusion or guarantee of a realized return.