Definition
The coupon rate is fixed at issuance and determines the periodic interest payments bondholders receive. A 5% coupon on a $1,000 face value bond pays $50 annually (or $25 semi-annually). The coupon rate does not change with market conditions—only the bond's market price adjusts to reflect current yields.
functions Formula
Annual Coupon Payment = Coupon Rate × Face Value
lightbulb Example
A 10-year corporate bond is issued with a 4.5% coupon rate on $1,000 face value. The bondholder receives $45 per year ($22.50 every six months) regardless of how the bond's market price changes.
verified_user Key Points
- Fixed at issuance—does not change with market rates
- Higher coupon bonds have lower price sensitivity (duration)
- Zero-coupon bonds pay no periodic interest
- Semi-annual coupons are standard in the U.S.