effective rate on a BOND; also called the EFFECTIVE INTEREST RATE. It considers the bond's FACE VALUE,market price, NOMINAL INTEREST RATE, and maturity period. If a bond was issued with a yield in excess of the nominal interest rate, it was sold at a DISCOUNT because it is costing the company more than the stated   interest rate.
The yield to maturity formula equals:

( Nomonal Interest + Discount/Year ) / ( ( Peresent Value  + Maturity Value )/2)

Note that if the bond was issued at a PREMIUM, the numerator would be:

Nominal Interest  - (  Premium / Years )