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A coupon payment on a
bond Bond or bonds may refer to: Common meanings * Bond (finance) In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of ...
is the annual
interest In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...

interest
payment that the bondholder receives from the bond's issue date until it matures. Coupons are normally described in terms of the "coupon rate", which is calculated by adding the sum of coupons paid per year and dividing it by the bond's
face value The face value, sometimes called nominal value, is the value of a coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine ...
. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, then it pays total coupons of $50 per year. Typically, this will consist of two semi-annual payments of $25 each.


History: bearer bonds

The origin of the term "coupon" is that bonds were historically issued in the form of bearer certificates. Physical possession of the certificate was (deemed) proof of ownership. Several coupons, one for each scheduled interest payment, were printed on the certificate. At the date the coupon was due, the owner would detach the coupon and present it for payment (an act called "clipping the coupon"). The certificate often also contained a document called a ''talon'', which (when the original block of coupons had been used up) could be detached and presented in exchange for a block of further coupons.


Zero-coupon bonds and valuation

Not all bonds have coupons.
Zero-coupon bond A zero coupon bond (also discount bond or deep discount bond) is a bond (finance), bond in which the face value is repaid at the time of maturity (finance), maturity. That definition assumes a positive time value of money. It does not make perio ...
s are those that pay no coupons and thus have a coupon rate of 0%. Such bonds make only one payment: the payment of the face value on the maturity date. Normally, to compensate the bondholder for the
time value of money The time value of money is the widely accepted conjecture that there is greater benefit to receiving a sum of money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, ...
, the price of a zero-coupon bond will always be less than its face value on any date before the maturity date. During the
European sovereign-debt crisis The European debt crisis (often also referred to as the eurozone crisis or the European sovereign debt crisis) is a multi-year debt crisis that has been taking place in the European Union The European Union (EU) is a political and econ ...
, some zero-coupon sovereign bonds traded above their face value as investors were willing to pay a premium for the perceived safe-haven status these investments hold. The difference between the price and the face value provides the bondholder with the positive return that makes purchasing the bond worthwhile. Between a bond's issue date and its maturity date (also called its redemption date), the bond's price is determined by taking into account several factors, including: * The
face value The face value, sometimes called nominal value, is the value of a coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine ...
; * The
maturity date Maturity or immaturity may refer to: * Adulthood Biologically, an adult is an organism In biology, an organism (from Ancient Greek, Greek: ὀργανισμός, ''organismos'') is any individual contiguous system that embodies the L ...
; * The coupon rate and frequency of coupon payments; * The creditworthiness of the issuer; and * The
yield Yield may refer to: Measures of output/function Computer science * Yield (multithreading) is an action that occurs in a computer program during multithreading * See generator (computer programming) Physics/chemistry * Yield (chemistry), the amou ...
on comparable
investment Investment is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance Finance is the study of financial institution ...
options.


See also

*
Credit (finance) Credit (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the R ...
*
Credit spread (options) In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availabl ...
*
TED spread The TED spread is the difference between the interest rates on interbank loans and on short-term U.S. government debt ("T-bills"). TED is an acronym An acronym is a word In linguistics, a word of a spoken language can be defined as the s ...

TED spread
*
Yield curve In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...

Yield curve


References

{{Authority control Bond valuation io:Kupono