Coupon Rate

Investments

Quick Definition

Coupon Rate is the fixed annual interest rate that a bond issuer pays to its bondholders, based on the bond’s face value.

Detailed Explanation

Coupon Rate represents the regular income earned from a bond. It is expressed as a percentage of the bond’s face value (par value) and remains fixed throughout the bond’s life (for fixed-rate bonds).

Bonds with higher coupon rates generally offer higher income but may come with higher risk depending on the issuer.

Coupon Rate Formula

👉 Coupon Rate = (Annual Interest Payment ÷ Face Value) × 100

Key Features of Coupon Rate

  • Fixed interest payment
  • Paid annually or semi-annually
  • Based on face value, not market price
  • Common in bonds and debentures

Coupon Rate vs Yield

[Image comparing coupon rate and bond yield showing the relationship between market price and interest earned]
  • Coupon Rate: Fixed interest based on face value
  • Yield: Actual return based on market price

Why Coupon Rate Matters

  • Determines regular income from bonds
  • Helps compare investment options
  • Important for fixed-income investors

Example

"If a bond has a face value of ₹10,000 and a coupon rate of 7%, 👉 Annual interest = ₹700"

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