What is the difference between current yield, coupon rate and R?

Question

r = interest rate which the coupon payments of a bond are discounted

Thanx in advance

Answer 1

The coupon rate is the interest when the bonds are valued at par, such as an even number like 100. This is typically the "when issued" value.

Bonds that have been on the market usually are bought and sold at a higher or lower value, since interest rates will have changed. For instance, a bond may be sold at .95.

The interest based on this value is your "r."

And if the bond is held to maturity, then in the above case there would be a capital gain--the difference between the .95 and the 1.00 that would be received upon maturity.

It is the addition of this capital gain (or loss) that is included in the expression "current yield."