Howdy Wall St. Willy! Sometime ago, I heard about a coupon that’s related to investing, but is it like a store coupon? What is it anyway?
A coupon is the amount of interest a bond issuer pays periodically to the bond holder.
Coupon or coupon rate is expressed as a percentage of the face value or the nominal value of the bond, which is the dollar amount the original buyer paid for it.
But, how is the coupon rate even decided?
Coupon rate is decided by the bond issuer when they issue the bond depending on the interest rates prevailing in the market at that time.
Do stocks also have coupon?
No. Stocks can also make payments to stockholders which are called dividends. But they are neither a fixed amount nor are they guaranteed like coupons.
Do ALL bonds pay coupon?
Most bonds do pay coupon but there are some specific kinds of bonds that don’t like zero coupon bonds. But we’ll talk about it more some other day.
Well, how often is coupon paid?
Most US bonds pay interest or coupon every 6 months or semi-annually.
Is coupon a fixed amount or does it keep changing?
The dollar amount and the rate of coupon is decided at the time of issuing the bond and stays the same for the life of the bond.
If the coupon rate is 5%, is that the return I receive from my bond investment?
Your actual return depends on the price at which you buy the bond and it is called yield but that is a topic for another time.
Thank you very much for telling me about coupon, Wall St. Willy.
You are welcome, Sooper Cooper. Remember, Finance is Your Friend!
Podcast: What is Coupon or Coupon Rate
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
All you need to know about Coupon or Coupon Rate: What is Coupon Rate, how is the coupon rate decided, do stocks also have a coupon, do all bonds pay a coupon, how often is coupon paid, is coupon a fixed amount or keeps changing, is coupon rate the return you receive from your bond investment, and more.
For show notes and transcript, please visit: https://www.easypeasyfinance.com/what-is-coupon-or-coupon-rate-of-bonds/
