Coupon Rate
The coupon rate is the fixed annual interest rate a bond pays, stated as a percentage of its face value.
The term comes from the paper coupons that bondholders once clipped and redeemed for interest. Today the coupon is simply the interest payment set when the bond is issued. For most US bonds it is paid in two semiannual installments.
The coupon rate is based on face value, not market price, so the dollar payment never changes for a fixed-rate bond. Example: a $1,000 bond with a 5% coupon pays $50 per year, or $25 every six months, no matter whether the bond later trades at $900 or $1,100.
Coupon rate and yield are different. The coupon is fixed at issuance, while yield changes with the bond's market price. When a bond trades below face value, its yield is higher than the coupon; above face value, its yield is lower.
Some bonds pay no coupon at all. Zero-coupon bonds, such as Treasury STRIPS, are sold at a discount and repay full face value at maturity, with the difference serving as the investor's interest.