What is a coupon payment on a bond?

A coupon payment refers to the annual interest paid on a bond. Coupons are expressed as s a percentage of the face value and are paid from the issue date until maturity. The coupon rate is determined by adding the sum of all coupons paid per year, then dividing that total by the face value of the bond.

Why is a coupon rate a good investment?

If a bond's coupon rate is higher than current market rates, the bond is considered more attractive since it offers a higher yield. Conversely, if the coupon rate is lower, the bond may be less appealing. The coupon rate plays a crucial role in setting the income stream for bond investors.

What is a coupon rate on a bond?

The bond’s coupon rate is 10%. This is the portion of its value that it repays investors every year. Coupon rate could also be considered a bond’s interest rate. In our example above, the $1,000 pays a 10% interest rate. Investors use the phrase “coupon rate” for two reasons.