COUPON RATE
Back to GlossaryDefinition
A bond’s annual interest payment as a percentage of its face value.
Summary
The coupon rate is the fixed annual interest rate that a bond pays to its holders, expressed as a percentage of the bond's face value (par value). For example, if a bond has a face value of $1,000 and a coupon rate of 5%, it will pay $50 in interest each year. This rate is set when the bond is issued and remains constant throughout the bond's life, regardless of changes in market interest rates or the bond's current trading price.
Usage Context
Essential for understanding bond valuation, comparing different bonds, calculating investment income, and analyzing fixed-income securities in portfolio management and corporate finance.
Common Confusions
- Thinking coupon rate changes with market conditions (it's fixed)
- Confusing coupon rate with current yield or yield to maturity
- Assuming coupon rate equals the bond's actual return
- Not understanding that coupon payments are based on face value, not purchase price
