coupon
noun
, ˈkyü-
\
Definition of coupon
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Examples of coupon in a Sentence
Recent Examples on the Web
The bond, which attracted demand in excess of €10 billion, was priced at a yield of 3.60% and had a coupon rate of 3.45%. — Emese Bartha, WSJ, "Greece Issues First Post-Bailout Bond," 29 Jan. 2019 Maybe Princess Eugenie just loves a good bargain or coupon! — Christopher Rosa, Glamour, "Meghan Markle Had the Most Expensive Royal Wardrobe in 2018—By a Landslide," 6 Jan. 2019 Enter the coupon code NEWYEAR2019 at check-out to get an additional 19 percent off. — Popular Mechanics, "5 Tools for Improving Your Finances in 2019," 27 Dec. 2018 The average coupon for convertible debt has fallen almost by half during the expansion to 2.9% this year, the lowest on record, with tech companies on average paying just 1.4%, according to Dealogic data. — Daniel Kruger, WSJ, "Rising Rates Revitalize Convertible-Bond Sales," 10 Dec. 2018 The coupon can be redeemed for any single Chobani 5.3-oz. — Kathleen Mulpeter, Health.com, "The Super Easy Way You Can Get a Free Chobani Yogurt This Month," 12 Feb. 2018 Call Talking Rain at 855-201-4333 to get a coupon for replacement. — David J. Neal, miamiherald, "Some consumers said the sparkling water tasted funny. The company took it to heart.," 26 June 2018 Those seen biking safely will be given a coupon for a free doughnut from Naperville Dunkin Donut locations. — Michelle Mullins, Naperville Sun, "Naperville News Digest," 15 June 2018 Two hundred boxes will contain coupons for a free dozen doughnut holes. — Liz Biro, Indianapolis Star, "Here's where to get free doughnuts in Indianapolis on National Doughnut Day," 29 May 2018These example sentences are selected automatically from various online news sources to reflect current usage of the word 'coupon.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.
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More Definitions for coupon
coupon
nounFinancial Definition of coupon
What It Is
In the finance world, a coupon is the annual interest paid on the face value of a bond. It is expressed as a percentage.
How It Works
The term "coupon" comes from the small detachable coupons attached to bearer bond certificates. The coupons entitled the holder to interest payments from the borrower. Coupons are rare today because most bonds are not issued in certificate form; rather, they are registered electronically (although some bondholders still choose to hold paper certificates).
Let's assume you purchase a $1,000 XYZ Company bond. The coupon rate on the bond is 5%, which means the issuer will pay you 5% interest per year, or $50, on the face value of the bond ($1,000 x 0.05). Even if your bond trades for less than $1,000 (or more than $1,000), the issuer is still responsible for paying the coupon based on the face value of the bond.
American and Japanese issuers typically make coupon payments every six months. So, in the example above, XYZ Company would pay you $25 twice a year. European issuers generally make coupon payments once per year.
Not all coupon rates stay the same over the life of a bond. Some issuers may pay interest based on a stated margin over a financial index such as the London Interbank Offered Rate (LIBOR). These floating-rate bonds typically reset their coupon rates every six months.
Not all bonds have a coupon, as is the case with zero-coupon bonds. Instead of making interest payments, companies may issue bonds at deep discounts and then pay the holder the full face value of the bond upon maturity. For example, instead of purchasing that XYZ Company bond for $1,000 and then collecting 5% interest each year, you could purchase a XYZ Company zero-coupon bond for $750, hold the bond until maturity, and receive $1,000 in return (for interest of $250). In both cases, the investor receives interest, but the zero-coupon bond investor does not receive interest until the bond matures. Note that zero-coupon issuers do not have to allocate cash to debt service (i.e., make interest payments) until their bonds mature.
Companies involved in leveraged buyouts or other transactions that result in a high level of interest burden may issue deferred-coupon bonds, whereby the issuer can avoid making far payments for a specified amount of time.
Why It Matters
Coupons are one of the defining characteristics of bonds and one of the most influential on their pricing because they give investors a way to compare bonds. For instance, the 5% coupon on the XYZ Company bond may make the bond an attractive investment if similar investments are only paying 2%. Likewise, the XYZ Company bond may not be attractive if similar investments pay 10%.
With higher interest rates, a better yield can be found other places than with bonds. This is why bond prices usually fall when interest rates increase and rise when interest rates fall. Notably, the size of a bond's coupon tends to indicate how sensitive the bond's price will be to interest rate changes. In general, the higher the coupon rate, the less the price will change when interest rates fluctuate.
Source: Investing Answers
coupon
noun
English Language Learners Definition of coupon
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coupon
noun
, ˈkyü-\
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