when investors buy a bond initially at face value and then hold the bond to maturity the interest they earn on the bond is based on the coupon rate set at issuance for investors acquiring the bond on the secondary market depending on the prices they pay the return they earn from the bond s interest payments may be higher or lower than the bond s coupon rate this is the effective return called yield to maturity ytm another way to express this is that the current yield of a bond is the annual coupon payment divided by the current price of the bond 
for example a bond with a par value of 100 but traded at 90 gives the buyer a yield to maturity higher than the coupon rate conversely a bond with a par value of 100 but traded at 110 gives the buyer a yield to maturity lower than the coupon rate example of coupon ratesan example can illustrate the difference between coupon rate and yield consider a scenario in which a bond has a par value of 100 and a coupon rate of 3 this bond provides an annual interest payment totaling 3 if an investor purchases that bond on the secondary market for 90 she will still receive the same 3 in interest payments over a year the current yield is thus 3 33 if a second investor purchases the same bond for 110 he will also receive the same 3 in annual interest payments the current yield of the bond changes again because of the new price becoming 2 73 