what is the effective yield 
the effective yield is the return on a bond that has its coupon payments reinvested at the same rate by the bondholder it is the total yield an investor receives in contrast to the nominal yield which is the coupon rate essentially effective yield takes into account the power of compounding on investment returns while nominal yield does not the bottom linethe coupon rate refers to the interest rate paid on a bond by its issuer for the term of the security bond issuers set the coupon rate based on market interest rates at the time of issuance a bond s coupon rate remains unchanged through maturity and bondholders receive fixed interest payments at a predetermined frequency as market interest rates change over time the value of the bond changes to reflect the relative attractiveness of the coupon rate while the coupon rate stays constant the bond s yield to maturity ytm varies depending on its market value and how many payments remain to be made 