Coupon Rate
Definition
The annual interest rate paid by a bond, expressed as a percentage of face value.
Explanation
A bond with a 5% coupon and $1,000 face value pays $50 per year (typically $25 semi-annually). The coupon rate is fixed at issuance and doesn't change, but the bond's yield changes as its market price fluctuates. When a bond trades above par (premium), its yield is below the coupon rate. When below par (discount), yield exceeds the coupon. Zero-coupon bonds pay no interest; instead, they're issued at a deep discount and return par at maturity.