Coupon (finance)

The origin of the term "coupon" is that bonds were historically issued in the form of bearer certificates. Physical possession of the certificate was (deemed) proof of ownership. Several coupons, one for each scheduled interest payment, were printed on the certificate. At the date the coupon was due, the owner would detach the coupon and present it for payment (an act called "clipping the coupon").{{cite news | url=https://www.nytimes.com/2006/02/12/business/yourmoney/12bearer.html?_r=1&scp=1&sq=Coupon%20Clipping,%20the%20Old-Fashioned%20Way&st=cse | title=Coupon Clipping, the Old-Fashioned Way | last=Belson | first=Ken | date=2006-02-12 | access-date=2009-03-03 | work=New York Times | archive-date=2013-12-19 | archive-url=https://web.archive.org/web/20131219202948/http://www.nytimes.com/2006/02/12/business/yourmoney/12bearer.html?_r=1&scp=1&sq=Coupon%20Clipping,%20the%20Old-Fashioned%20Way&st=cse | url-status=live }}

The certificate often also contained a document called a talon, which (when the original block of coupons had been used up) could be detached and presented in exchange for a block of further coupons.{{Cite web |url=http://lexicon.ft.com/Term?term=talon |title=Talon Definition from Financial Times Lexicon |access-date=2017-12-14 |archive-url=https://web.archive.org/web/20171215110814/http://lexicon.ft.com/Term?term=talon |archive-date=2017-12-15 |url-status=dead }}

Not all bonds have coupons. Zero-coupon bonds are those that pay no coupons and thus have a coupon rate of 0%.{{Cite web |title=Coupon Bond Vs. Zero Coupon Bond: What's the Difference? |url=https://www.investopedia.com/ask/answers/06/zerocouponregularbond.asp |access-date=2024-08-14 |website=Investopedia |language=en}}{{Cite book |last=During |first=Alexander |url=https://books.google.com/books?id=KlYMEAAAQBAJ&dq=Not+all+bonds+have+coupons.+Zero-coupon+bonds+are+those+that+pay+no+coupons+and+thus+have+a+coupon+rate+of+0%25.&pg=PA140 |title=Fixed Income Trading and Risk Management: The Complete Guide |date=2021-03-22 |publisher=John Wiley & Sons |isbn=978-1-119-75633-0 |pages=140 |language=en}} Such bonds make only one payment: the payment of the face value on the maturity date. Normally, to compensate the bondholder for the time value of money, the price of a zero-coupon bond will always be less than its face value on any date of purchase before the maturity date.{{Cite web |title=Bond Valuation: Calculation, Definition, Formula, and Example |url=https://www.investopedia.com/terms/b/bond-valuation.asp |access-date=2024-08-14 |website=Investopedia |language=en}} During the European sovereign-debt crisis, some zero-coupon sovereign bonds traded above their face value as investors were willing to pay a premium for the perceived safe-haven status these investments hold.{{Cite web |title=Information Spillovers and Sovereign Debt:Theory Meets the Eurozone Crisis |url=https://www.ecb.europa.eu/press/conferences/shared/pdf/20221010_mon_pol_conf/Ordonez_paper.pdf |access-date=2024-08-14 |website=European Central Bank |language=en}} The difference between the price and the face value provides the bondholder with the positive return that makes purchasing the bond worthwhile.

Between a bond's issue date and its maturity date (also called its redemption date), the bond's price is determined by taking into account several factors, including:

• The face value;
• The maturity date;
• The coupon rate, frequency of coupon payments, and day count convention;
• The creditworthiness of the issuer; and
• The yield on comparable investment options.

• Credit (finance)
• Credit spread (options)
• TED spread
• Yield curve

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Category:Bond valuation

io:Kupono