Coupon Rate

The coupon rate is the amount of interest that the bond issuer will pay the bondholder each year.

The coupon rate is always stated as a percentage of the face value of the bond. For instance, if you have a $1,000 bond with a coupon rate of 6 percent, you will receive $60 each year ($1,000 x 0.06 = $60).

The bond issuer will specify in the terms of the bond whether the full coupon rate will be paid in one coupon payment or if the full coupon rate will be spread among multiple coupon payments during the year. Using the numbers above, if the bond issuer specifies that the coupon rate will be paid in two separate coupon payments, the bondholder can expect to receive two payments of $30 each ($60 coupon rate ÷ 2 coupon payments = $30 per payment).

You can see on the image of the $1,000,000 Treasury Bond below that the coupon rate is 7 5/8 percent.