Bond Coupon

A coupon is the amount that a bond pays out per year in interest as a percentage of its “nominal” a.k.a. paper value – as opposed a bond’s yield (which is determined as a percentage of its current market value). A bond’s coupon is consistent for the length of its life. For example, if a bond is worth $100 and pays $5 per year, its coupon is 5% and will remain 5% – as neither the nominal value of the bond ($100) nor the amount it pays out annually ($5) fluctuates with the market (like a bond’s market value, and therefore yield, does).