A bond is a loan claim with terms and risks

A bond generally represents debt: the issuer promises specified interest payments and principal repayment at maturity, subject to its terms and ability to pay. Coupon is the stated cash interest schedule; market yield reflects the bond price and expected cash flows under stated assumptions. They are related but not interchangeable.

Investor.gov's U.S. bond education describes issuer types and principal, interest, maturity and credit risks. The calculations below are invented teaching examples, not a quote, offer or forecast. A bond's terms, tax treatment, call provisions, seniority and governing law must be read in the actual offering documents.

Coupon, price and yield answer different questions

  • Face value: principal amount due at maturity if the issuer performs under the terms.
  • Coupon rate: stated annual interest as a percent of face value.
  • Market price: what a buyer and seller might agree now; it can be above or below face value.
  • Yield to maturity: a model rate that equates price with scheduled payments and maturity principal, assuming payments occur and the bond is held to maturity. It is not a guaranteed realized return.

For a fixed-rate bond, market yields and prices generally move in opposite directions: existing fixed payments look less attractive when comparable new yields rise. The size of the price response depends on cash-flow timing and instrument terms. Credit risk is separate: a higher yield may reflect greater perceived nonpayment risk, not a free extra return.

Fictional calculation: coupon versus market yield

Teaching assumptions: face value $1,000; annual coupon 4%; two years to maturity; annual payments; no call, default, tax or transaction costs. Annual coupon = $1,000 × 4% = $40. If a comparable discount rate is 5%, modeled price = $40 ÷ 1.05 + $1,040 ÷ 1.05² = $981.41. The $40 coupon has not changed, but the bond price is below face value in this model.

At a 6% discount rate, modeled price = $40 ÷ 1.06 + $1,040 ÷ 1.06² = $963.33, about $18.07 below the 5% case. This is a sensitivity illustration, not a prediction; real bonds may include credit-spread changes, accrued interest, calls, taxes and trading costs.

At $981.41, simple current yield = $40 ÷ $981.41 ≈ 4.08%. This is not yield to maturity because it ignores the modeled movement toward $1,000 at maturity and the timing/value of each payment.

Read terms before comparing yield labels

Check issuer, maturity, coupon frequency, call/put terms, seniority, collateral, default provisions, currency, fees and how the quoted yield is calculated. A stated yield cannot establish that payments will arrive. A callable bond may be repaid early; default can reduce or delay payments; selling before maturity exposes the holder to market-price and liquidity risk.

Sources: Investor.gov bond FAQs (U.S. investor education on debt claims, maturity and credit risks; reviewed 26 October 2026) and its fixed-rate bond interest-rate bulletin (published 26 June 2013; general inverse price/yield relationship, not a valuation of any bond; reviewed 26 October 2026).