DEFINITION of ‘Coupon Rate’
The yield paid by a fixed income security. A fixed income security’s coupon rate is simply just the annual coupon payments paid by the issuer relative to the bond’s face or par value. The coupon rate is the yield the bond paid on its issue date. This yield, however, will change as the value of the bond changes, thus giving the bond’s yield to maturity.
INVESTOPEDIA EXPLAINS ‘Coupon Rate’
A bond’s coupon rate can be calculated by dividing the sum of the security’s annual coupon payments and dividing them by the bond’s par value. For example, a bond which was issued with a face value of $1000 that pays a $25 coupon semi-annually would have a coupon rate of 5%. All else held equal, bonds with higher coupon rates are more desirable for investors than those with lower coupon rates.