Category: 

What is a Coupon Bond?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 October 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The CDC reported that eight foods, including peanuts and milk, account for 90% of food allergies.  more...

October 25 ,  1971 :  The United Nations expelled Taiwan and admitted China.  more...

Coupon bonds are a type of bond issue that offers the benefit of receiving an interest payment on a semi-annual basis. This is in contrast to other types of negotiable bond issues, where the payment of interest may take place on an annual or biannual basis, or even be delayed until the bond reaches full maturity. With a coupon bond, the interest payments are provided on a more frequent basis, with the face value of the bond paid in full at the time that the bond reaches maturity.

One obvious advantage of a coupon bond is that it helps to create a steady source of revenue for the bondholder during a given calendar year. Depending on the structure of the actual bond issue, the amount or coupon of the interest payment will vary. Some negotiable bonds of this type allow for a fixed coupon payment, while others allow for a variable coupon payment based on a floating system of calculating the interest due at a given point in time.

Ad

When it comes to the rate of interest that can be earned with a coupon bond, there is no set regulation that forces a coupon bond issue to be made available at an interest rate that is above or below the rates applied to other types of bonds. However, it is not unusual for the rate of interest applied to be slightly lower than other types of bonds, possibly due to the additional expenses incurred by the bond issuer as a result of the more frequent interest payments.

Like a bearer bond, it is possible to purchase a coupon bond that is transferable. However, care should be taken in choosing a coupon bond issue if this type of action may be a possibility for the future. In some cases, the transference of a coupon bond to a new bondholder may trigger a change in the way that the interest due is calculated. There may also be some type of fees involved that either the buyer or the seller will need to address before the transfer is complete.

Ad

More from Wisegeek

You might also Like

Discuss this Article

anon355605
Post 6

What are the benefits of coupon bonds?

sneakers41
Post 4

Cupcake15-I know that zero coupon municipal bonds offer a coupon bond price at a much lower level and allow the opportunity for small investors to get a guaranteed return on their investment.

If you buy zero coupon bonds that also have the municipal bond component the income generated will be tax free and the initial investment begins at $5,000.

Zero coupon bonds vary in maturity from one to forty years. The longer the date of maturity the higher the yield will be.

Most zero coupon bonds are purchased with a maturity of eight to twenty years on average. I think that many people are investing in these bonds because there is so much uncertainty in the market right now.

cupcake15
Post 3

Nana1503- I don’t know the answer to your question. I do know that zero coupon bonds can be a good investment product. You generally buy the bond at a discount and receive the face value of the bond at maturity.

In addition, you receive accrued interest at maturity as well. The nice thing about a zero coupon bond is that you don’t pay the full face value and you get a guaranteed return on your investment.

This is why I would buy zero coupon bonds. They may not be as sexy as stocks, but at least you know how much money you will be earning.

These are great for savings for college or another long term savings goal. Also, because the money is wrapped up in a bond, you will not pull it out so you have a chance to earn some money on your investment.

nana1503
Post 2

Why do securities (fixed coupon bond) have similar yields and quite different coupons?

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email