How this calculator works
The coupon rate is the annual coupon divided by the bond's face value. It is set when the bond is issued and normally stays fixed for the life of a plain fixed-rate bond. Because the coupon is usually paid in instalments, the rate is not simply the payment you receive divided by face value: you first multiply the per-period payment by the number of payments in a year. A $1,000 bond paying $25 twice a year has a $50 annual coupon and a 5% coupon rate. The coupon rate is not the yield, because it ignores the price paid for the bond.
Formula
Annual coupon = coupon per period x payments per year. Coupon rate = annual coupon / face value. Coupon per period = face value x coupon rate / payments per year.
Worked example
A $1,000 face value bond that pays $25 every six months has twice-yearly payments, so the annual coupon is $50 and the coupon rate is 50 / 1,000 = 5%. If the same $25 were paid quarterly the annual coupon would be $100 and the rate would be 10%.
Advertisement
Frequently asked questions
Why does frequency matter?
The coupon rate is annual. The same per-period cash payment represents a different annual amount depending on how many payments the bond makes.
Is the coupon rate the same as the interest rate?
For a plain bond the coupon rate is the fixed rate stated in the indenture. The yield to maturity is the return based on the price you pay, and it changes as the price moves.
Can a bond have a zero coupon rate?
Yes. A zero-coupon bond pays nothing until maturity and is sold at a deep discount to face value. Enter a per-period coupon of zero to see a 0% coupon rate.