Bonds pay interest periodically at a pre-specified rate of interest. The annual rate at which this interest is paid is known as the coupon rate or simply the coupon. Interest may be paid monthly, quarterly, half-yearly, annually or at some other frequency. For example, a bond with a face value of Rs.1,000 with a 10% coupon payable semi-annually will pay Rs.50 as interest every six months. The dates on which the interest payments are made are known as coupon due dates. Coupon rate is also known as nominal rate. In addition to indicating the coupon payments that the investor can expect to receive over the term of the bond, the coupon rate also affect's price sensitivity to changes in market interest rates.
Coupon = Coupon rate x Par value of bond.