Definition
The coupon rate is the annual interest payment made by a bond issuer, expressed as a percentage of the bond's face value. It remains fixed for the life of a fixed-rate bond. The coupon rate determines the periodic cash flows bondholders receive regardless of market price changes.
Formula
Example
A bond with $1,000 face value and 5% coupon rate pays $50 per year in interest.
FAQ
What is Coupon Rate?
The annual interest rate paid on a bond based on its face value.
How do you calculate Coupon Rate?
A common formula for Coupon Rate is: Annual Coupon Payment = Face Value × Coupon Rate
Why is Coupon Rate important?
Coupon Rate helps investors evaluate fixed income and make more informed decisions.
Related Terms
Bond
A fixed-income security representing a loan made by an investor to a borrower.
Face Value (Par Value)
The nominal value of a bond that will be repaid at maturity.
Current Yield
A bond's annual coupon payment divided by its current market price.
Yield to Maturity (YTM)
The total return anticipated if a bond is held until maturity.