Coupon Rate Bond

Coupon Rate Bond

The coupon rate of a bond is the annual interest rate the issuer pays to the bondholder. The rate is expressed as a percentage of the bond’s face value. Bond coupon rates are quoted as annual rates, but the bond coupons are typically paid semi-annually.

For example, an investor holding a bond with a $1,000 face value and a 10% annual bond coupon will receive $100 in interest yearly until the bond matures. At maturity the investor will receive the principal, also called the face value or the par value, plus the final coupon payment. Similarly, an investor holding a bond with a $1,000 face value and a 10% semi-annual coupon will receive $50 in interest every six months until maturity.

Bond Coupon Definition

A bond coupon refers to the interest payments the bond issuer pays to the bondholder periodically until the bond matures. Bond coupon rates are quoted as annual rates, but the coupons are typically paid semi-annually. The term “coupon” stems from the days when bondholders would actually tear detachable coupons from the bond certificate and turn them in to the bond issuer on certain dates to redeem the interest payments.

coupon rate bond

See Also:
Common Stock
Company Valuation
Convertible Debt Instrument
Covenant Definition of a Bond Contract
Long Term Debt
Non-Investment Grade Bonds
Owner’s Equity
Par Value of a Bond
Preferred Stocks

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