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Coupon

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Coupon
The Interest rate on a Security that the issuer promises to pay to the Holder until maturity which is expressed as an annual percentage of face value.
    
It is the Interest rate on a Bond. It's expressed as an annual percentage of the face value. A Bond that pays 6 percent Interest has a 6 percent coupon. Coupons are "attached" to bonds, either physically, as with old bonds (with a stapler), or electronically. Each coupon represents a predetermined payment promised to the Bond-Holder in return for his or her loan of money to the Bond-issuer. The Bond-Holder is typically not the original lender, but receives this payment for effectively lending the money.
    
The coupon rate, the amount promised per pound of the face value of the Bond, helps determine the Interest rate or Yield on the Bond. Not all bonds have coupons. Zero coupon bonds are those which do not include coupons, but are sold to investors at a price less than the Par value paid out when the Bond has matured.
    
Regardless of the coupon rate, the Bond Will trade at a price such that its Yield equals the prevailing market rate.

It is called a "coupon" because some bonds literally have coupons attached to them. Holders receive Interest by stripping off the coupons and redeeming them. This is less common today as more records are kept electronically. They are so designated because before the dematerialization of the securities, they comprised a sheet divided into small numbered rectangles (coupons) which were to be cut out and given to the company for the perception of the interests or the dividends.
Posted by  LISA Life Insurance Settlement Association
 
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