Suppose you have purchased a bond, at a market price that's different from the bond's par value. There are three numbers commonly used to measure the annual rate of return you are getting on your investment viz.,

Coupon Rate: Annual payout as a percentage of the bond's par value

Yield-to-Maturity: Composite rate of return off all payouts, coupon and capital gain (or loss) Capital gain / loss is the difference between par value and the price

The yield-to-maturity is the best measure to calculate rate of return, since it includes all aspects of your investment. Using following equation,

where  c = annual coupon payment (in Rupees, not a percent)

n = number of years to maturity

B = par value

P = purchase price

For e.g. Suppose your bond is selling for Rs.950, and has a coupon rate of 7%; it matures in 4 years, and the par value is Rs.1000. Calculate the YTM?

The coupon payment is Rs.70 (that's 7% of Rs.1000), so the equation to satisfy is

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