Bond yields ...
Paid less than £100? The return (your yield) is greater than the coupon!
So far, we have looked at an example where you buy a bond for £100 and you get paid back £100 at maturity.
In this scenario, your return and your yield is the same as the interest rate (also called the "coupon") on the bond. The yield on the Bondco bond is 5%.
Let's suppose Bondco sold the bond (which has a face value of £100) for £95. Bondco must still pay 5% interest and it must still pay you back £100.
You've paid £95 for a bond that will pay you back £100 at maturity and you'll still get £5 interest every year.
Your return/your yield will now be greater than the coupon because you paid less than the face value of the bond.
If you pay £95 for a bond that will be repaid at £100 in three years' time and which pays 5% interest per year, the yield (your return) is 6.9%.
To be assured of getting this yield of 6.9% you would need to hold the bond to maturity and Bondco would have to pay you back as promised.
For a bond calculator, go here ...