The basic promise
A bond issuer borrows money under defined terms. A conventional fixed-rate bond promises coupon payments and principal repayment at maturity, subject to the issuer meeting its obligations. Credit, inflation, interest-rate and liquidity risks remain relevant.
Coupon versus current yield
A hypothetical bond with a $1,000 face value and a 5% annual coupon pays $50 a year. Bought at $950, its current yield is $50 ÷ $950, or approximately 5.26%. Bought at $1,050, its current yield is approximately 4.76%. Current yield ignores the gain or loss from repayment at face value and the timing of payments.
Why the distinction matters
For a conventional fixed-rate bond with unchanged promised cash flows, a higher required yield implies a lower price. Holding to maturity does not remove default or inflation risk. Callable and floating-rate bonds need their own analysis because their payment terms differ.
Sources & method
Sources support the referenced concepts. Numerical examples are hypothetical unless stated otherwise. A link does not imply endorsement.