Coupon

Coupon is a term often used interchangeably with interest. But coupon actually has two distinct meanings:

• In the case of Bearer Bonds the coupon is the warrant attached to the certificate, i.e. a physically detachable coupon, which you are required to present to a paying agent in order to receive the interest payment due. The coupon will state the amount of interest due at each payment date.
• As a result of the definition above, coupon has also come to be accepted as a name for the nominal interest a bond pays. Remember not to confuse the nominal interest being offered with the yield. The latter is the actual rate of return you are getting and it relates to the market price you paid for the investment.

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Last Updated: May 2007 © Moneyextra.com

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