Glossary

The (bond) coupon refers to the annual interest payment made by the bond issuer to bondholders.

It is expressed as a percentage of the bond's face value (also known as par value) and is usually paid semiannually. The term "coupon" originates from the time when bondholders had to physically clip coupons from their paper bonds to receive interest payments. 📄

For example, a bond with a face value of $1,000 and a 5% coupon rate would pay $50 in annual interest to the bondholder, usually divided into two $25 payments every six months.

Fun fact: While the name "coupon" still remains, physical bond coupons are now extremely rare, as most bonds are issued and traded electronically, making interest payments automatic and more convenient for bondholders. ✂️