1. Term. How long cash flows on the bond lasts and if cash payments are irregular/delayed.

2. Periods. How many compounding periods are in a year. This varies from continual (infinite) to non-compounding (1 = simple interest rates)

3. Coupon. Non-principle amounts paid in the interim term.

4. Principle. The face value of the bond.

5. Discount/premium. The extra amount paid or cut from the initial price to lower/raise the total yield on the bond. For example, a $1,000 10-year bond annual paying bond with a 10% coupon yielding 10% will be worth $1,000 initially. If the same bond is sold for $1,100, the extra 100 lowers the yield on the bond investment.

6. Embedded options. Bonds sometimes come with embedded options like calls and puts. These have to be stripped out, valued through option-pricing models like Black-Scholes, so you can get to the true interest rate without the option.

Secondly, you can answer this by using terms like a credit rating agency. Here are the components:

a. Risk free rate. The interest rate given no default risk (e.g. the US 10 year T-bill rate).

b. Sovereign risk. The premium given to a bond for the inherent risk of the underlying assets operating in a foreign country.

c. Agency risk. The risk attached to the agency/company underwriting the bond. Basically, it's the risk that the company will default and/or go bankrupt.

d. Currency risk. This is the risk associated with the bond being denominated in a foreign currency and/or being located in a different country. For example, Japanese yen bonds rates are extremely low, meaning that the currency risk premium is negative.

The discount rate is the rate that was used to calculate the price of the bond. In practice that would be the market rate of interest. So you are buying a bond that pays 5% interest when the market pays 10%!! So would that mean it would be reasonable to pay 1 million for the bond??

Of course not. The 1 million dollar bond COSTS 810, 460.
so it is bought at a discount.

Ok so a million dollar bond, even though it is bought at 810,460 will still mature at 1,000,000. So really the person buying the bond will gain 189,540 or $37,908 PER YEAR

Now the person buying the bond will get 5% based on 1,000,000 per year interest, or $50,000 per year

So the person gets 50,000+37,908 per year return

=87908/1000000= 8.8% effective return according to what I am thinking the question is getting at.

So… it's not a fixed number. It's the return rate you require on your investment.

That said: for an investment in stocks people take in general the risk free rate of the expected holding period (the corresponding T-bond plus some risk premium).