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Simple English definitions for legal terms
coupon interest rate
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A quick definition of coupon interest rate:
Definition: A coupon interest rate is the interest rate that a bond pays to its investors. It is also known as the coupon rate. This rate is fixed at the time of issuance and remains the same throughout the life of the bond. It is the percentage of the bond's face value that the investor will receive as interest payments each year. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the investor will receive $50 in interest payments each year.
A more thorough explanation:
Definition: The coupon interest rate is the fixed rate of interest paid by a bond or other fixed-income security to its investors. It is the annual rate of interest that the issuer of the bond promises to pay to the bondholder.
For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the issuer will pay the bondholder $50 per year in interest until the bond matures.
The coupon interest rate is an important factor in determining the value of a bond. If interest rates in the market rise above the coupon rate of a bond, the bond's value will decrease because investors can earn a higher rate of return elsewhere. Conversely, if interest rates fall below the coupon rate, the bond's value will increase because it offers a higher rate of return than other investments.