Difference between interest rate and coupon rate?
1 answersQuestion asked ( August 05, 2009 , Shopping / Finance )
I receive a payment in the form of interest almost twice a year from one of my investments. I think it’s a debt investment but i’m unsure. I understand interest rates are also called coupon rates, but this is first time i am hearing that term. Can someone help me understand the difference between interest rate and coupon rate?
Answers to : Difference between interest rate and coupon rate...
Answer
The amount of interest paid per year on the face value of bond is called the coupon rate. It is normally paid twice a year. Effectively, there is no difference between interest rate and coupon rate. They are one and the same for a bond.
Normally, coupon rate is fixed throughout the tenor of the bond. It can vary with the variation in money market index such as LIBOR. The name coupon originated when the bonds were physical certificates which had coupons attached to them for interest payments. The coupons had to be detached and presented to the borrower to receive the money. Bond certificates are now electronic and the payments are made automatically.
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