A coupon payment is interest paid to a bondholder when a bond matures, usually paid semi-annually, and is based on the bond’s face value. The yield is the amount paid compared to the bond’s current market value.
A coupon payment is a payment made to the holder of a bond for the interest that the bond accrues while it matures. This is usually done as a semi-annual payment, so only half of the interest due on the bond is paid at a time. The use of the term “coupon” stems from the largely abandoned practice of attaching coupons to a bond that could be detached or “clipped” from the bond and presented to the issuer for interest payment. A coupon payment often determines a bond’s yield at any given time.
Generally, depending on a bond’s coupon rate or interest rate, a coupon payment refers to a payment made to a bondholder. A bond is essentially a loan made by one person or agency to another. When someone buys a bond, regardless of whether it is from a company or government, they are paying the money that will be returned when the bond matures. Bonds often have interest rates or coupon rates associated with them, and a coupon payment is an annual or semi-annual payment of that interest.
The amount paid for a coupon payment is based on the face value, also called face value or face value, of the bond itself. If someone buys a $1,000 US dollar (USD) bond, for example, with a 10% interest or coupon rate, then he or she receives $100 USD each year as a coupon payment. This is usually paid semi-annually, so he or she would receive a payment of $50 USD every six months. Payment is made at the same rate regardless of a bond’s actual or market value, although this is often considered when evaluating a bond’s “yield.
Yield refers to the amount paid in a coupon payment, compared to a bond’s current market value. In the example above, the yield would be 10% since the market value was still at $1,000 and the bondholder received an annual payment of $100. If the market value of the bond declines to, say, $750 USD, then the yield would become around 13.3% since the bond was worth less but still paid the same amount of interest. On the other hand, if the value of the bond were to increase to $1,200 USD, then the yield would become about 8.3% as the bond would be worth more while paying an interest rate that is effectively lower than it initially was. This yield is generally considered more than coupon payment amounts, as it reflects the current value of the bond rather than a static value.
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