Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Coupon Rate

What it is:

The coupon rate of a bond is the amount of interest paid per year as a percentage of the face value or principal

How it works (Example):

If you own at $1,000 bond with a coupon rate of 4%, you will receive interest payments of $40 a year until the bond reaches maturity

Why it Matters:

The term coupon rate used to have a much more literal meaning than it does today. To receive interest payments in the past, bondholders would have to clip a coupon from their physical certificate of bond ownership and take it to the bank to obtain the cash. Today, your broker is more likely to deposit the payments straight into your account. Some bonds, known as zero-coupon bonds, do not pay coupons, and instead are sold at a price less than par value.

Related Terms View All
  • World Bank
    Based in Washington, D.C., the World Bank is funded and managed by several member...
  • Macroprudential Analysis
    In the United States, stress tests are the most common example of macroprudential...
  • Managed Futures Account
    When you buy a managed futures account, in essence you're hiring an expert to buy, sell...
  • Real Interest Rate
    Let's say John Doe has a bond from Company XYZ that pays a 4% coupon. If the inflation...
  • Vance D. Coffman
    Born in Kinross, Iowa, on April 3, 1944, Coffman earned his bachelor's degree in...