Bond Coupon Rate

What is a Bond Coupon Rate?

A business will issue bonds when it needs to obtain funding from long term investors by way of loans.

The bond coupon rate is the interest rate that the issuer pays to the holder of the bond (the investor). The bond coupon rate is normally a fixed rate for the term of the bond and interest is usually paid every six months.

Historically, bonds where issued in paper form with a coupon attached to them representing each interest payment. On the due date the bond holder would remove the coupon and exchange it at the bank for the interest payment. As the interest rate was identified on this coupon it became known as the bond coupon rate.

A zero coupon bond is a bond which does not have coupons and therefore does not make interest payments.

For further information see the Wikipedia bond coupon rate definition.

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Last modified March 23rd, 2016 by Team

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