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Coupon Rate
The annual interest rate paid by a bond issuer on the bond's face value.
Coupon Rate
The coupon rate is the fixed annual interest rate that a bond pays on its face (par) value.
Formula
Annual Coupon Payment = Face Value × Coupon Rate
A $1,000 bond with a 5% coupon pays $50 per year (typically $25 every six months).
Fixed vs. floating
- Fixed-rate bonds: Coupon stays the same for the life of the bond
- Floating-rate bonds: Coupon adjusts periodically based on a benchmark rate
- Zero-coupon bonds: No coupon payments—sold at a discount to face value
Coupon rate vs. yield
The coupon rate is set at issuance and does not change. The yield changes daily as the bond's market price fluctuates. If you buy a bond at par, the coupon rate equals the yield. If you buy at a premium or discount, they differ.
What determines the coupon rate
- Prevailing interest rates at the time of issuance
- Credit quality of the issuer (lower quality = higher coupon)
- Maturity length (longer maturity typically means higher coupon)
Key Takeaways
- Context matters when interpreting any financial metric.
- Combine multiple data points for informed decisions.
- Continue learning to build investment knowledge.
Quick Reference
Category
Fixed Income
Difficulty
Beginner
Reading Time
1 min
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Where You'll See This
This concept appears throughout stock detail pages and financial data.