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Coupon Payment

A Coupon Payment is a periodic interest payment that a bondholder receives over the course of a bond’s lifetime. Coupon Payments are usually paid semiannually and the payment amount is determined by the coupon rate of the bond.

To give a visual real life example consider the following bond. Let’s say a bond has a face value of $1,000. It has a Coupon Rate of 7% and will mature in 10 years. This bond will have $70 in Coupon Payments every year until it reaches its maturity date. The Coupon Payment of $70 will be paid out semi annually (in two payments of $35 over the course of one year). After 10 years this bond will mature and the lender to whom the bond was issued must repay the original principal amount of $1,000 to the investor. Over the course of the bond’s 10 year lifetime, the investor would have made a profit of $700 in Coupon Payments after recovering his initial investment of $1,000 once the bonds matures.

In the past, Coupon Payments were cashed by taking actual coupons from bond certificates and redeeming them at a bank for the interest payment. This is where the term ‘Coupon Payment’ comes from. While some bonds still have coupons that must be cashed at a physical bank, most Coupon Payments today are deposited directly to an investor’s bank account electronically.

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