It has been suggested that this article or section be merged with Coupon rate. (Discuss)

In finance, coupons are "attached" to bonds, either physically, as with old bonds (with a stapler), or electronically. Each coupon represents a predetermined payment promised to the bond-holder in return for his or her loan of money to the bond-issuer. The bond-holder is typically not the original lender, but receives this payment for effectively lending the money. The phrase "coupon clipper" can refer to either a bond-owner or someone who uses coupons from newspapers, catalogs or advertisements.

The coupon rate, the amount promised per dollar of the face value of the bond, helps determine the interest rate or yield on the bond. Not all bonds have coupons. Zero coupon bonds are those which do not include coupons, but are sold to investors at a price less than the par value paid out when the bond has matured.

Regardless of the coupon rate, the bond will trade at a price such that its yield equals the prevailing market rate.

Example

Uncut bond coupons on 1922 Mecca Temple (NY, NY, U.S.A.) construction bond

There were 40 coupons printed on the same sheet of heavy paper as the Mecca Temple 5%s of 1944 bond itself. As a $100, twenty-year 5% bond with semi-annual payments, each coupon became worth $2.50 on the date printed on it. These coupons were never cut off the bond because the company became insolvent during the Great Depression. The building it funded was taken by the city of New York for back taxes, and renamed New York City Center. The coupons have no economic value today, except for the wallpaper securities or scripophily dealer from whom the bond was purchased, for a nominal amount.

Donate to Wikimedia