Coupon.
In plain English
A coupon is the regular interest a bond pays you for lending money to the issuer. It is set when the bond is issued and expressed as a coupon rate, a percentage of the bond's face value, usually paid in two installments a year. A 1,000 dollar bond with a 5 percent coupon pays 50 dollars a year. The coupon is fixed for most bonds, so the dollar payment does not change even as the bond's market price rises and falls. The name comes from the paper coupons bondholders once clipped and mailed in to collect their interest.
01Why it matters
The coupon tells you the actual cash a bond puts in your pocket each year, which is the starting point for comparing one bond's income against another.
02The math, step by step
You buy a 1,000 dollar bond with a 4 percent coupon. It pays 40 dollars a year, typically as two 20 dollar payments, until it matures and returns your 1,000 dollars.
03What this is NOT
A coupon is NOT the same as yield. The coupon is the fixed payment based on face value; yield measures your actual return based on the price you paid, which can be higher or lower than the coupon rate.