Coupon rate is the rate at which the interest on a bond is paid to the investor or bondholder. The coupon rate is payable on the Face value or the ‘par value’ of the bond mentioned at the time of issuance and is represented as a percentage. A coupon rate is fixed by the bond issuer and the bondholders receive interest payments at the mentioned frequency.
Features of Coupon rate are:
1. Coupon rate is decided on the basis of existing market conditions and the general interest rates prevalent in the economy, besides other factors.
2. Interest rates in the market keep on changing due to various factors and the bond’s value increases or decreases accordingly as they move lower or higher than the bond’s Coupon rate.
3. In case the interest rates rise, the bondholder will still receive the same lower interest payments as per the Coupon rate and vice versa.
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