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Coupon Payment

A coupon payment is the periodic interest payment made to bondholders during the life of the bond. It is typically paid semi-annually or annually and is calculated as a percentage of the bond’s face value. Coupon payments provide a fixed income stream to investors who hold the bond, and the rate at which they are paid is known as the bond’s coupon rate.

Example

An investor holds a $1,000 bond with a 5% coupon rate, receiving $50 in annual coupon payments (5% of $1,000).

Key points

• A coupon payment is the interest paid to bondholders at regular intervals.

• It is calculated as a percentage of the bond’s face value (the coupon rate).

• Bondholders receive coupon payments until the bond matures, at which point they are repaid the face value.

Quick Answers to Curious Questions

The coupon payment is calculated by multiplying the bond’s coupon rate by its face value, and it is typically paid annually or semi-annually.

When the bond matures, the bondholder receives the final coupon payment and is repaid the bond’s face value.

For fixed-rate bonds, coupon payments are fixed, but for floating-rate bonds, the payments can vary based on changes in an underlying benchmark interest rate.