Meaning and rate
A coupon is an interest payment on a bond. Its amount and the way it is determined are set by the issue terms. A coupon may be fixed, floating or determined by another formula. The coupon rate is usually stated relative to face value, not the actual price the investor paid in the market.
Illustrative calculation
If the notional face value is 1 thousand roubles and the fixed annual coupon rate is 8%, the annual coupon amount is 80 roubles under the stated simple structure. Payment frequency and accrual rules must be checked separately: an annual rate does not mean that the entire amount must be paid every month.
Coupon versus total return
A coupon is not the full return on a purchase. The price may differ from face value, and selling before maturity may produce a profit or loss. There may also be commissions and non-payment risk. To assess an investment, the investor considers the full cash-flow schedule, not just a large percentage in the bond description. Related reading: [coupon versus yield](/guides/coupon-versus-yield/), [bond scenario](/tools/bond-scenario/) and [accrued coupon income](/glossary/nakoplennyy-kuponnyy-dohod/).