Definition of Coupon Rate

Coupon rate is the rate of interest that a debt instrument offers to its holder, calculated on the face value of the instrument until the maturity. Normally coupon is paid periodically. It can be paid monthly, quarterly, semi-annually, or annually.

Example of Coupon Rate:

Let’s assume Company ABC has issued worth $2million 10 years 7% corporate bonds with a face value of $1,000 paying coupon every year. In this statement, the coupon rate is 7% and the maturity of the bonds will be after 10 years.

The coupon will be paid after every year as follows:

Coupon value = coupon rate x face value x number of bonds

Coupon value = 7% x $1,000 x ($2,000,000 / $1,000) = $140,000