Find the coupon basis first
Coupon rate and the cash amount of one coupon are not the same. Educational hypothetical example: unchanged par is 2,000 roubles, annual rate is 6% and the educational terms divide the annual payment into two equal parts. That is 120 roubles per year and 60 per half-year. This calculation assumes equal periods and the stated basis; actual dates and day-count method may produce another amount. Therefore do not mechanically multiply a percentage by an arbitrary purchase price and call the result the coupon.
If part of par has already been returned, determine whether later interest accrues on the remaining amount. If the coupon floats, its future cash amount may not yet be known.[9](#source-market-corporate-bonds) Buying between payments adds another element—accrued coupon interest, which is usually added to the clean transaction price.[5](#source-market-accrued) It does not raise the contractual rate and is not a gift to the buyer. This is why simply dividing all future coupons by the visible application price can overstate the result.
What does current yield show?
In its simple form, current yield is the annual coupon payment divided by price. Educational hypothetical example: annual coupon is 120 roubles and a purchase immediately after a coupon payment costs 1,940 roubles. The ratio 120 / 1,940 is approximately 6.19%. If the educational price is instead 2,060 roubles, the result is approximately 5.83%. The coupon rate remains 6% in both cases. The fraction answers only the question of coupon relative to price; it does not account for the difference between purchase price and redemption.
Current yield also does not say how much time remains before principal is returned. Two bonds with the same annual coupon and price may have different calendars, call rights and performance risk. Counterexample: one returns all par soon, while another distributes it over distant dates. The same fraction does not make them economically identical. Understanding the next measure requires the timing structure of the cash flow, not only the annual interest amount.
Yield to maturity is a model rate
Yield to maturity links the current price to future payments assuming holding to the specified end.[7](#source-market-rate-risk) In the calculation model, payments are discounted to the purchase date: distant receipts have less current weight. The resulting rate describes consistency between price and schedule, but does not guarantee that the schedule will be performed. If unknown coupons are replaced with an assumption, the assumption is part of the result. Also establish whether full price with accrued interest is used, whether costs are included and which annual convention presents the rate. Without methodology, percentages from different interfaces may not be comparable.
Educational hypothetical example with no interim payments: full price is 1,940 roubles and a single payment of 2,120 roubles arrives exactly one educational year later. The one-year yield is 2,120 / 1,940 − 1, approximately 9.28%. The calculation is simple because there is one payment and a stated term. With several coupons, one cannot simply divide total profit by the number of years and call it exact yield to maturity. Reproducing a real card requires every cash-flow date and its calculation rules.
Reinvestment, offer and realized result
A model rate does not mean that every interim amount will automatically earn the same rate after receipt. Final accumulation depends on whether coupons are reinvested and on what terms. Selling before maturity also replaces expected redemption with the actual sale price. If yield to offer is shown, establish which rights make the selected date attainable. Changing the calculation horizon changes the meaning of the measure; a higher percentage does not necessarily describe a longer, safer or more accessible cash flow.
The reading practice is not to choose the highest number but to check the label: coupon rate, current yield, model to maturity or realized result? Then check price date, payment composition, costs and assumptions. The SEC separately reminds readers that performance presentation depends on methodology and on accounting for commissions, dividends and taxes.[12](#source-market-performance) The same discipline helps with bonds: do not confuse contract parameters with a promise of future profit. A before-cost calculation is an educational boundary of the model, not an estimate of what a particular holder will retain.