what is a coupon rate 
a coupon rate is the nominal yield paid by a fixed income security it is the annual coupon payments paid by the issuer relative to the bond s face or par value a coupon refers to the annual interest rate paid on a bond paid from issue date through maturity understanding coupon ratesthe coupon rate or coupon payment is the nominal yield the bond is stated to pay on its issue date this yield changes as the value of the bond changes thus giving the bond s yield to maturity ytm the coupon rate is the interest rate paid on a bond by its issuer for the term of the security the term coupon is derived from the historical use of actual coupons for periodic interest payment collections once set at the issuance date a bond s coupon rate remains unchanged and holders of the bond receive fixed interest payments at a predetermined time or frequency a bond issuer decides on the coupon rate based on prevalent market interest rates among other factors at the time of the issuance market interest rates change over time and as they move lower or higher than a bond s coupon rate the value of the bond increases or decreases respectively changing market interest rates affect bond investment results since a bond s coupon rate is fixed all through the bond s maturity a bondholder is stuck with receiving comparably lower interest payments when the market is offering a higher interest rate an equally undesirable alternative is selling the bond for less than its face value at a loss thus bonds with higher coupon rates provide a margin of safety against rising market interest rates if the market rate turns lower than a bond s coupon rate holding the bond is advantageous as other investors may want to pay more than the face value for the bond s comparably higher coupon rate coupon rate formulaa bond s coupon rate can be calculated by taking the sum of the security s annual coupon payments and dividing them by the bond s par value then multiplying by 100 in order to be represented as a percent the formula for coupon rate can be represented as sum of annual coupon payments par value x 100 coupon rate1for example a bond issued with a face value of 1 000 that pays a 25 coupon semiannually has a coupon rate of 5 all else held equal bonds with higher coupon rates are more desirable for investors than those with lower coupon rates excel software is also helpful for quickly calculating the bond s coupon rate coupon rate vs yield