finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...

, a coupon is the

interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distin ...

payment received by a bondholder from the date of issuance until the date of maturity of a

bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemical ...

. Coupons are normally described in terms of the "coupon rate", which is calculated by adding the sum of coupons paid per year and dividing it by the bond's

face value The face value, sometimes called nominal value, is the value of a coin, bond, stamp or paper money as printed on the coin, stamp or bill itself by the issuing authority. The face value of coins, stamps, or bill is usually its legal value. Howe ...

. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, then it pays total coupons of $50 per year. Typically, this will consist of two semi-annual payments of $25 each. 1945 2

History

The origin of the term "coupon" is that bonds were historically issued in the form of bearer certificates. Physical possession of the certificate was (deemed) proof of ownership. Several coupons, one for each scheduled interest payment, were printed on the certificate. At the date the coupon was due, the owner would detach the coupon and present it for payment (an act called "clipping the coupon"). The certificate often also contained a document called a ''talon'', which (when the original block of coupons had been used up) could be detached and presented in exchange for a block of further coupons.

Zero-coupon bonds

Not all bonds have coupons.

Zero-coupon bond A zero coupon bond (also discount bond or deep discount bond) is a bond in which the face value is repaid at the time of maturity. Unlike regular bonds, it does not make periodic interest payments or have so-called coupons, hence the term zero- ...

s are those that pay no coupons and thus have a coupon rate of 0%. Such bonds make only one payment: the payment of the face value on the maturity date. Normally, to compensate the bondholder for the

time value of money The time value of money is the widely accepted conjecture that there is greater benefit to receiving a sum of money now rather than an identical sum later. It may be seen as an implication of the later-developed concept of time preference. The ...

, the price of a zero-coupon bond will always be less than its face value on any date before the maturity date. During the

European sovereign-debt crisis The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone me ...

, some zero-coupon sovereign bonds traded above their face value as investors were willing to pay a premium for the perceived safe-haven status these investments hold. The difference between the price and the face value provides the bondholder with the positive return that makes purchasing the bond worthwhile.

Valuation

Between a bond's issue date and its maturity date (also called its redemption date), the bond's price is determined by taking into account several factors, including: * The

; * The maturity date; * The coupon rate and frequency of coupon payments; * The creditworthiness of the issuer; and * The yield on comparable

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...

options.

References

{{Authority control Bond valuation io:Kupono

History

Zero-coupon bonds

Valuation

See also

References