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Coupon Rate

POSTED ON JULY 09, 2021    

How finance folk use it

In fixed-income securities (like bonds) the coupon rate is the amount that you get from investing, usually shown as a percentage of the face value. This is an annual rate, although the actual payment schedule can differ among bonds.


Is it good or bad?

Knowing the coupon rate can help you decide if the bond can help you reach your money goal. It makes it easy to understand how your money will earn each year.


For example, let’s look at bonds with a face value of P100,000 and a coupon rate of 5%. They will give you P5,000 every year (5% of P100,000) until they mature and you get your P100,000 back.


What it means for you

Before putting your money in a bond, look at the coupon rate to see if the returns you get are acceptable. You can compare them to the rates of other bonds to see which one fits you best (but always look at the bond issuer and check your risk profile first).


Don’t forget that bonds might be available for less or more than the face value. While that will not change the coupon rate, it could have an effect on the amount of money you need to put in, and therefore the yield to maturity.

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