The percentage rate of return on a bond given the price paid for the bond. For example, if investors were nervous about a $500,000 par value bond which had a stated yield of 8% of 40,000 per year in coupons, that bond would trade at a discount. Let’s say instead of $500,000 people were only paying $400,000. Yet the bond is still paying $40,000 in interest. The bond has an effective yield of 10%.
