Coupon
IntermediateA coupon is the regular interest payment a bond pays to its holder, usually once or twice a year.
The name comes from the days when bonds were paper certificates with small detachable coupons. Bondholders cut off a coupon and presented it to receive each interest payment. Today, payments are made electronically, but the name remains.
The size of the coupon is set when the bond is issued. It is calculated by multiplying the bond's face value by its coupon rate. A bond with a face value of 1,000 and a coupon rate of 6% pays coupons totalling 60 a year. If it pays semi-annually, each coupon is 30.
The coupon amount usually stays fixed for the life of the bond, regardless of changes in market interest rates or in the bond's market price. Some bonds, called floating-rate notes, have coupons that adjust periodically with a benchmark rate.
Coupons are a key part of a bond's total return, along with any gain or loss when the bond is sold or matures. Bonds that pay no coupons at all are called zero-coupon bonds.
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