Coupon

The financial term "coupon" refers to the interest rate payable with the principal of a bond at the date of the bond's maturity. Typically this rate of interest is fixed for the life of the bond although the interest rate can also vary in accordance with a money market index.

The word coupon in this usage actually dates back to the days when physical, paper bonds were issued to investors. Each of the bonds had coupons attached to them which would be detached and presented at the bank by the bond holder in exchange for the payment of the interest owed.

In the terminology of bond trading then, "coupon" is synonymous with interest since a bond actually constitutes a loan situation. The issuer of the bond is the borrower while the investor or bond holder is the lender. Bonds are normally issued as a means of financing long-term investments.

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