Coupon-Equivalent Yield

coupon-equivalent yield

The stated rate of return on bonds without accounting for any compounding. Because bonds nearly always pay interest twice a year, the coupon-equivalent yield must be compounded semiannually to produce the effective annual yield, a measure used by many banks in advertising certificates of deposit. For example, a 12% coupon, $1,000 principal amount bond pays $60 in interest each six months, resulting in an effective yield of 12.36% because the first $60 payment each year can be reinvested to earn an additional $3.60 during the latter half of the year.

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Coupon-Equivalent Yield

1. See: Coupon-equivalent rate.

2. The yield on a bond that does not take into account the effects of compounding.