Coupon rate
A bond's coupon rate is the fixed annual interest rate stated on it, used to compute its periodic payment from face value, and compared to market yield to see if it trades above or below par.
See it move
A bond's coupon rate is fixed at issue and never changes afterward. A bond with a €5,000 face value paying an annual coupon of €300 has a coupon rate of €300 ÷ €5,000, or 6 percent. Comparing that fixed 6 percent to the market's required yield later shows whether the bond trades at a premium, at par, or at a discount.
The formula
Variables
- Coupon rate (%)
- Annual coupon payment (€)
- Face value (€)
Recovers the stated annual coupon rate when the euro coupon payment and face value are known.
Check yourself
A bond with a €1,000 face value pays two coupons of €27.50 each year and currently trades at a market price of €917. What is the bond's coupon rate?