The single discount rate which, when applied to all cash flows including principal repayment, give a bond price equal to its market price. Let’s build on the example given in “tutorial: bond pricing“. The market price must be equated with the sum of all the cash flows attainable over the bond’s life:

Suppose the bond’s market price is $98.5. If y denotes the yield, then:

2.5. e ^{– y*0.5} + 2.5. e ^{– y*1.0} + 2.5. e ^{– y*1.5} + 102.5. e ^{– y*2.0} = 98.5

By solving for y, we find: y= 5.72%

For more details on calculations, download Excel sheet: calculating bond yield.