Coupon Rate

Coupon rate is the annual interest rate stated on a bond, generally applied to its par value.

A simple example

A bond with a $1,000 face amount and a 5% coupon pays $50 in stated annual interest if payments are made as promised. Buying that bond for $900 does not change the $50 coupon, but it does change the yield on the price paid.

Why this matters to income investors

The stated rate sets contractual interest, but purchase price and credit risk determine investor return.

How to use coupon rate in your research

Multiply the stated coupon rate by the bond’s face amount to estimate contractual annual interest. Then compare your purchase price and the issuer’s credit risk; the coupon is not the same as the return you will earn.

This material is general education and information, not individualized investment, tax, or legal advice.