Difference between revisions of "Coupon"

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Coupon generally refers to the interest payments that are paid, either annually or semi-annually, on debt securities like [[notes]] or [[bonds]]. Zero-coupon bonds don't make such payments, selling at a discount to their face value, also called par. They are named for a part of the paper security that investors used to redeem to receive their interest payment.
== Par for the course ==
Until around 20 years ago, investors in corporate or government bonds would receive a bond certificate with detachable "coupons" that the investor could exchange with the issur's truistee for their interest payment - these were called 'bearer bonds'.<ref>{{cite web|url=http://www.mysmp.com/bonds/bond-coupon.html|name=What is a "Coupon"|org=My Stock Market Power|date=November 3, 2008}}</ref> Later came 'registered bonds', which were issued in the investor's name and automatically made coupon payments to investor, while computer-based 'book-entry bonds' are now sent to the investor's financial institution and also make automatic coupon payments.
Zero-coupon bonds, as their name suggests, do not pay coupons but instead sell at a deep discount to the face value of the bond, also known as the par value. The extent of this discount depends on both the prevailing market [[interest rate]] and the bond's maturity, which means the the price of zero-coupon bonds is more sensitive to interest-rate changes.<ref>{{cite web|url=http://stats.oecd.org/glossary/detail.asp?ID=2957|name=Zero-coupon bonds|org=OECD|date=November 3, 2008


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