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]

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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

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

Origin of the Term 'Bond Coupon'

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.

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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