Economy and interest rates · updated October 21, 2026
What is a bond's coupon and how is it calculated
The coupon is the interest that a bond's issuer pays to the holder, on fixed dates. It is calculated from the face value, not from the market price, so the dollar amount stays the same until maturity.
The coupon formula
- Face value
- The amount the issuer pays back at maturity, written on the bond (for example $100, $1,000 or $5,000).
- Coupon rate
- The fixed annual interest rate in the terms of the bond.
Worked example
A bond has a face value of $5,000 and a 7% coupon rate, paid twice a year.
You get $175 every six months, whatever the bond costs on the market.
Worth knowing
The coupon and the yield are different things. The coupon is fixed. The yield depends on the price you buy at: if you buy the bond above for $4,500, the $350 a year is 7.8% of your money.
When the coupon can fool you
A big coupon means big risk: a company offering a coupon far above the market usually does so because it is riskier. Accrued interest: when you buy a bond between two payments, you also pay the seller the part of the coupon earned so far.
Related terms
Learn it in the Academy
Questions about the coupon
Why is it called a coupon?
Paper bonds used to have slips attached that were clipped off and handed to a bank to collect the interest. The name stuck.
What is a zero-coupon bond?
One that pays no interest along the way. You buy it below face value, and your gain is the difference you get at maturity.
These explanations are for information only. They are not a recommendation to buy or sell.
Back to the glossary