Coupon Rate.
A definition, in plain English — with the books that teach it.
What it means
The coupon rate is the fixed annual interest payment a bond issuer promises to pay, expressed as a percentage of the bond's face (par) value. The term comes from the era of physical bond certificates that included detachable coupons redeemed for interest payments. The coupon rate is set at issuance and does not change; what changes is the bond's market price and therefore its yield. A bond trading below par has a yield above its coupon rate; a bond trading above par has a yield below its coupon rate.
Example
A company issues a $1,000 bond with a 5% coupon rate. The investor receives $50 per year (typically $25 every six months). If interest rates rise and the bond's price falls to $900, the yield rises to about 5.6% — but the coupon payment of $50/year stays fixed.
