Legal Definitions - coupon interest rate

Definition: The coupon interest rate is the fixed rate of interest paid by a bond or other fixed-income security to its investors. It is the annual rate of interest that the issuer of the bond promises to pay to the bondholder.

For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the issuer will pay the bondholder $50 per year in interest until the bond matures.

The coupon interest rate is an important factor in determining the value of a bond. If interest rates in the market rise above the coupon rate of a bond, the bond's value will decrease because investors can earn a higher rate of return elsewhere. Conversely, if interest rates fall below the coupon rate, the bond's value will increase because it offers a higher rate of return than other investments.