What is a coupon payment?
Coupon payment is made to the bond holder for interest that the bond has grown while ripening. This is usually done as a semi -annual payment, so only half the interest owed for the bond is paid at once. The use of the term "coupon" comes from the predominantly abandoned practice of attaching coupons to the bond, which could be separated or "cropped" from the bond and submitted to the issuer for interest payment. The payout of the coupon often determines the bond yield at the moment. The bond is basically a loan made by one person or the other agency. When someone buys a bond, regardless of whether it is from society or government, the money to be returned when the bond matures. Bonds often have associated interest rates or coupon rates and the payment of the coupon is the annual or semi -annual reference of this interest.
The amount paid for the payment of the coupon is based on the nominal value, also called par or nomInal value, bond itself. For example, if someone purchases a bond for $ 1,000 (USD), with 10% interest or coupon rate, then every year it receives $ 100 as a voucher payout. This is usually paid half -year, so he would receive a $ 50 payment every six months. Payment is made at the same rate, regardless of the actual or market value of the bond, although it is often considered in the evaluation of the “yield” of the bond.
The yield concerns the amount paid in the payment of the coupon compared to the current market value of the bond. In the previous example, the yield would be 10%, as the market value was still $ 1,000 and the bond holder received an annual payment of $ 100. If the market value of the bond has decreased, for example, USD 750 USD would cost about 13.3%because the bond was less value, but still paid the same interest amount. On the other hand, if the value of the bond increases to $ 1,200, then the yield would cost about 8.3%because the bond would be more worthou rate that is effectively lower than originally. This yield is usually considered more than the amount of coupon payments, because it reflects the current value of the bond rather than the static value.