Coupon rate
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
The annual interest rate stated on a bond, applied to the face value.
Coupon rate in plain English
A bond is basically an IOU: you lend a company or government money, and they pay you interest until they pay you back. The coupon rate is the yearly interest rate printed on that IOU, and it's always figured on the bond's "face value" — the official amount stamped on it, usually $1,000. So a 5% coupon on a $1,000 bond means $50 of interest every year, no matter what the bond later trades for. (The odd name comes from old paper bonds that had little tear-off coupons you clipped to collect each payment.)
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide