How to Calculate Nominal Yield

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Knowing how to calculate nominal yield will help you maximize your investment earnings.
Knowing how to calculate nominal yield will help you maximize your investment earnings. (Image: invest your money. image by Andrey Plis from <a href='http://www.fotolia.com'>Fotolia.com</a>)

Nominal yield is a financial term used to describe the value of a bond. Specifically, it expresses the amount of interest that an investor receives on the bond each year. Knowing how to calculate nominal yield is useful because it will allow you to determine if the potential earnings are worth the risk of investment. It will also help you make more informed decisions regarding the sale of old financial securities.

Gather the necessary information. You will need to know the amount of income received from the bond each year, and the par value of the bond. The bond's par value is the price at which the bond was issued.

Divide the amount of income received each year by the par value. For example, if you had a bond that paid out $20 a year and had a par value of $100, you would divide 20 by 100 to get 0.2.

Convert the answer to a percentage. To do this, multiply the result of the previous step by 100. The product of the two numbers will be the nominal yield of the bond. Using our example above, this would give us 0.2 x 100, or a nominal yield of 20 percent.

Tips & Warnings

  • Nominal yield may also be referred to as coupon rate.

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