Nominal yield is calculated by which formula?

Nominal yield is a crucial concept in bond investing. It represents the interest a bond pays as a percentage of its face value, often referred to as the coupon rate. The formula for calculating nominal yield is derived from the bond's interest payments relative to its face value.

When you take the annual interest paid by the bond and divide it by the bond's face value, you directly measure how much return an investor is receiving based on the bond's stated value rather than its current market price. This reflects the bond's ability to provide income based on its original issuance value, which is important for understanding the bond's characteristics before market fluctuations affect its trading price.

Thus, using the annual interest payments over the face value of the bond accurately captures this yield, allowing investors to compare different bonds based solely on their nominal yields, regardless of market changes. This is essential for making informed investment decisions in the fixed-income market.