What is a Bond Coupon?

What is a Coupon?

When you buy a bond, you are loaning money to the Issuer, and the coupon is what the Issuer pays you for loaning it money.

The coupon is the interest rate on the bond. It determines the interest or amount of money the Issuer pays you each year until the bond matures.

To calculate the yearly interest, you multiply the interest rate times the bond’s face value. And if you buy the bond at par, the total amount of interest you receive is your investment return.

In general, the coupon is higher on bonds from Issuers that are considered lower quality or risky. Because investors want to get paid more for the risk the Issuer won’t be able to make payments on the bond.

The coupon is also generally higher for bonds with longer maturity dates because investors want to get paid more for loaning money over a longer period of time.

Remember, the coupon is the interest rate on the bond. So it’s the money the Issuer pays you for lending it money!

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