Coupon rate
The contractual rate used to calculate periodic interest payments on a bond's face value.
Plain languagePractical exampleConnected reading
01
What is it?
The contractual rate used to calculate periodic interest payments on a bond's face value.
02
Why does it matter?
It determines cash payments but is not the same as the investor's yield at the market price.
03
How should it be read?
Read face value, payment frequency, market price, maturity and issuer risk together.
04
Common mistake
Assuming a high coupon automatically means a high total return.
A simple example
A 10% coupon bond trading above par can have a yield to maturity below 10%.