The regular amount of interest payment that is made to bondholders during the lifetime of a bond (or a similar fixed-income security or interest rate derivative). Coupon payment may take place annually, semi-annually, quarterly, monthly, etc. The interest amount is determined by the following formula:
Coupon = coupon rate × par value of bond
Most bonds pay coupon semi-annually, which means a bondholder receives two payments each year. In other words, with a 6-year, $1,000 bond that has a 8 % semi-annual coupon, a bondholder would receive $40 (4% *$1,000) twice a year for the next six years. For a bond whose annual coupon rate and par value are 7% and $1,000, respectively, a bondholder will be paid annual interest (coupon) of $70.
