Coupon

A coupon measures the annual rate of interest on a debt instrument such as a bond. This value is measured from the face value of the bond and does not change as the price of the bond changes. The coupon does not take into account the payment schedule, which often includes one or two payments per year.

Unlike dividends, which get paid to a company’s shareholders and are based on profits, coupon payments are always defined upfront. In the case of a company or central bank defaulting on its debt obligation, coupon obligations may not be fulfilled. The coupon plays a large factor in a bond’s yield, along with the face value and the purchase price.