Question

the coupon rate for a bond is best defined as the:

Answer 1

Coupon rate is the rate of interest paid by the issuer of bond on the Face Value of the bond for the term of the bond.

Coupon rate = (Sum of coupons that will be paid in the year)/(Face Value of the bond)

Thus coupon rate can be viewed as amount of interest paid (to the purchaser) per year as a percentage of the face value of the bond.

Example: If Face Value = $100,coupon rate = 10%, and coupons are paid at semi-annual frequency,

then coupon paid every 6 months till maturity = 10%/2 * $100 = $5.