101,000 Coupon income is an interest rate that is paid by bond issuers at the face value of a security. Coupon income is calculated on the basis of the fictitious value of the bond, not the issue price or market value. For example, if you have a 10-year bond worth $50 with a coupon rate of 10%, you will get $5 per year for 10 years, no matter what happens to the price of the bonds on the market.

Government and companies issue bonds to raise money to finance their activities. When buying bonds, the issuer promises periodic interest payments on the money invested at the coupon rate specified in the bond certificate. The bond issuer pays interest annually before maturity and then also returns the principal or face value.

What is the coupon for bonds

Coupon is a payment of interest on bonds. It persists as part of the use of investments, even though the technology has made the actual coupons obsolete.

Before computers automated and simplified much of the financial world, bond investors received engraved physical certificates. These certificates were evidence that the investor had lent the issuer of the bonds and that he was entitled to receive capital plus interest.

Several coupons are attached to each bond, each with a date. Twice a year, when the interest payment period came, investors physically cut off the coupons of the respective bonds with the current date.

On the maturity date, when the principal amount of the bonds was to be paid, the owner sent the certificate back to the issuer, which then withdrew it and returned the nominal value to the investor.

How bond coupons work today

Today technological progress has changed the mechanism of investing in bonds, eliminating the need for paper coupons. But this term is still used in modern investments.

Coupon Bond refers to the amount of interest due and the time when it is paid.

If you buy a newly issued bond through a brokerage account, the broker accepts your payment and places the bond in your account. It is located next to your shares, funds investment vehicles and other securities.

When interest payments come, they are saved directly to your account. You don’t have to do anything: don’t cut out the bond coupon, don’t keep the bond certificate in the safe. This is called coupon performance.

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