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Coupon Rate

Definition

The annual interest payment on a bond expressed as a percentage of face value.

How It Works

Set at issuance and typically does not change. Coupon payment = Coupon rate × Face value. Compare to YTM to determine premium or discount.

Example

A 6% coupon on a $1,000 bond pays $60 per year (or $30 semi-annually).

Common Misconceptions

✗Coupon rate changes when market rates change
✗Higher coupon always means better investment

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FAQs

Common questions about Coupon Rate

A bond with 0% coupon rate, sold at a deep discount and redeemed at face value.

For fixed-rate bonds, no. The coupon rate is set at issuance and remains constant. Floating-rate bonds adjust periodically based on a reference rate like SOFR plus a spread.