Coupon Rate

The annual interest rate paid on a bond face value.

The coupon rate is the fixed annual interest payment expressed as a percentage of the bond par value. A 1,000 dollar bond with a 5 percent coupon pays 50 dollars per year. It is called a coupon because bonds historically had physical coupons that investors clipped and redeemed for interest.

The bond's 5% coupon rate meant its $1,000 face value paid $50 in interest every year.