A coupon payment is the periodic interest payment that a bond issuer makes to the bondholder. It is calculated by multiplying the bond's face value by its coupon rate. These payments are typically made semi-annually or annually until the bond's maturity date.

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The total return an investor receives from holding a bond to maturity is composed of two distinct cash flows: 1) a series of fixed, periodic interest payments known as coupon payments, and 2) the final repayment of the bond's face value (or principal) on the maturity date.

Components of a Bond's Return

The coupon rate of a bond is the fixed annual interest rate paid by the issuer, expressed as a percentage of the bond's face value. The periodic cash payment received by the bondholder, known as the coupon payment, is calculated by multiplying this rate by the face value.

Coupon Rate (Bond)

The term 'coupon' originates from the historical practice of issuing bonds as physical paper certificates. To receive a scheduled fixed payment, the bondholder would clip a detachable coupon from the certificate and present it for redemption. [3, 5, 7, 8]

Origin of the Term 'Bond Coupon'

Coupon Payment

The face value of a bond, also known as par value or principal, is the amount of money the issuer agrees to repay the bondholder at the maturity date. This amount is fixed and specified in the bond's indenture, and it serves as the basis for calculating coupon payments.

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