Advanced English Dialogue for Business – Nominal yield

Listen to a Business English Dialogue About Nominal yield

Lillian: Hi Kenneth, do you know what nominal yield means in finance?

Kenneth: No, I don’t. What is it?

Lillian: Nominal yield, also known as coupon yield, is the annual interest rate paid by a bond issuer to the bondholder, expressed as a percentage of the bond’s face value.

Kenneth: Oh, I see. How is nominal yield different from other types of yields?

Lillian: Nominal yield differs from other yields like current yield and yield to maturity because it doesn’t take into account factors like changes in bond price or time to maturity.

Kenneth: That makes sense. How is nominal yield calculated?

Lillian: Nominal yield is calculated by dividing the annual coupon payment by the face value of the bond and then multiplying by 100 to get a percentage.

Kenneth: Got it. Are there any limitations to using nominal yield as a measure of bond performance?

Lillian: One limitation is that nominal yield doesn’t reflect changes in bond prices, so it may not accurately represent the total return on investment for bondholders.

Kenneth: I understand. How can investors use nominal yield when evaluating bonds?

Lillian: Investors can use nominal yield as a starting point to compare the fixed-income returns of different bonds, but they should also consider other factors like credit risk, inflation, and overall market conditions.

Kenneth: Thanks for explaining, Lillian. Nominal yield seems like an important metric for bond investors to understand.

Lillian: Absolutely, Kenneth. It provides valuable insight into the income potential of bonds and helps investors make informed decisions about their fixed-income investments.