# Buying Bonds? Do you know the difference between coupon and yield?

It is a bit difficult to calculate the income from debt securities. Because here we hear about two types of income. And the problem is created there. The coupon is the promised interest and the yield is the percentage of the promised coupon based on the price at which you are buying the bond.

Decided to buy bonds from the market in the hope of extra interest. But do not understand how to buy, or how to choose the right loan. Are you worried about how much interest you will get from buying a loan?

It is a bit difficult to calculate the income from debt securities. Because here we hear about two types of income. And the problem is created there. Buying bonds, it speaks of interest at a certain rate. You can say, “I don’t understand what other income is being discussed!”

Really. Why is that? Why the price fluctuates on the loan can be discussed separately. Today, let’s understand the difference between these two incomes.

Suppose a bond is issued at a price of 100 rupees. The ‘coupon’ on it is 6 rupees. This means that if you buy this bond, you will get 6 percent interest.

But you did not buy this bond when it was released on the market. Now you think you will buy this bond from the market. When he went to buy in the market, he saw that the loan was being sold not at the initial price of 100 rupees. It is being sold at 101 rupees. Coupon or promised interest but that remains the same. According to our example, 6 percent. But you bought it for 101 rupees. So will your income be that 6 percent?

Understandably, if you earn 7 rupees for 100 rupees, it will be 6 percent as a percentage, if you earn 8 rupees for 101 rupees, it will decrease as a percentage. And in the same terminology, it is called ‘Yield’.

## So how much will this yield stand?

Promised interest = 6 percent

initial price of the bond = 100 rupees

Market price of the bond = 101 rupees

then yield hall = (8 rupees / 101 rupees) X 100 = 5.94 percent

Now let’s look at it differently. Follow our example. The market showed that the price of the bond has come down to 90 rupees. You bought from the market. Then your yield is:

(8 Taka / 90 Taka) X 100 = 6.8 percent

This is the difference between a coupon and a yield. The coupon is the promised interest and the yield is the percentage of the promised coupon based on the price at which you are buying the bond. You have to do this calculation because you invest by calculating the profit. So if you do this figure as a percentage, you can easily understand the comparative profit figure.