A coupon is the periodic interest payment a bond pays to its holder, expressed as an annual percentage of face value. A $1,000 bond with a 5% coupon pays $50 annually, typically in two semi-annual $25 payments. Coupon rate is set at issuance and doesn't change. Coupon is distinct from yield, which adjusts based on the bond's current market price. If the bond trades at $900, the same $50 coupon represents a 5.56% current yield. Zero-coupon bonds pay no interest but sell at deep discounts to face value, with the entire return coming from price appreciation to maturity.
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August 22, 2026 · Aditya Gupta
Investing
Related terms
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