Risk Management Basics

- Derivatives Basics
- Put-Call Parity
- Forwards vs Futures
- Spot Rate
- Forward Rate Formula
- Cash Settlement vs Physical Settlement
- Backwardation vs Contango
- Residual Risk
- Best Futures Books
- Futures vs Options
- What are Options in Finance?
- Exercise Price (Strike Price)
- In the Money
- Options Trading Strategies
- Call Options vs Put Options
- Options vs Warrants
- Writing Call Options
- Writing Put Options
- Gamma of an Option
- Hedging
- Options Trading Books
- International Option Exchanges
- Interest Rate Derivatives
- Interest Rate Swap
- Swap Rate
- Random vs Systematic ErrorÂ
- Equity Strategies
- Swaps in Finance
- Embedded Derivatives
- Commodity Derivatives
- Commodity Risk Management
- Managed Futures Strategy
- Top 7 Best Books on Derivatives
- Structured Finance Jobs
- Commodities Trading Books
- Best Commodities Books

- Fixed Income
- Equity Research vs Credit Research - Know the difference!
- Credit Analysis | What Credit Analyst Look for? 5 C's | Ratios
- Yield Curve Slope, Theory, Charts, Analysis (Complete Guide)
- Bond Pricing
- Coupon Bond
- Coupon Bond Formula
- Zero Coupon Bond
- Duration Formula
- Coupon Rate Formula
- Carrying Value of Bond
- Sinking Fund Formula
- Coupon Rate of a Bond
- Convertible Securities
- What are Treasury Bills?
- Repurchase Agreement
- Treasury Bills vs Bonds
- Coupon vs Yield
- Coupon Rate vs Interest Rate
- Credit Rating Process | A Complete Beginner's Guide
- Asset Backed Securities (RMBS, CMBS, CDOs)
- Loss Given Default - LGD | Examples, Formula, Calculation
- Top 7 Best Fixed Income Books
- ABS and MBS Index | Complete Beginner's Guide
- Top 10 Best Treasury Management Book
- Top 10 Best Credit Research Books
- Convexity of a Bond | Formula | Duration | Calculation
- Payment in Kind Bond | PIK Definition | Interest | Example
- Subordination Debt | Meaning | Example | Types | Risks
- Top 10 Best Books - Bonds Market, Bond Trading, Bond Investing
- Bonds vs Debentures
- Secured vs Unsecured Loan
- Bills of Exchange vs Promissory Note
- Bills of Exchange | Meaning | Examples | Top Features
- Promissory Notes
- Secured Loans
- Unsecured Loans
- Bonds
- Hypothecation
- Subordinated Debt
- Fallen Angel
- Bond Equivalent Yield Formula
- Junior Tranche
- Credit Analyst Interview Questions and Answers
- Debt Covenants | Bond Covenant Examples | Positive & Negative
- Credit Analyst Career
- Negative Covenants (Restrictive)
- Sinking Fund
- Bond Sinking Fund
- Negotiable Instruments
- Credit Spread
- Bond Pricing Formula

- Risk Management Careers
- Complete Beginner's Guide to CRM Exam
- How to Become a Quantitative Financial Analyst
- Risk Management Certifications and Salary
- Financial Engineering Career Guide: Program, Jobs, Salary
- Quantitative Analyst Salary | Skills | Trends | Top Employers
- Certificate in Quantitative Finance (CQF) Exam Guide
- Relative Risk Reduction Formula

Related Courses

**Table of Contents**

## What is Coupon Rate Formula?

The term “coupon rate” refers to the rate of interest paid to the bondholders by the bond issuers. In other words, it is the stated rate of interest paid on fixed income securities, primarily applicable to bonds. The formula for coupon rate is computed by dividing the sum of the coupon payments paid annually by the par value of the bond and then expressed in terms of percentage.

Mathematically, Coupon Rate Formula represented as,

**Coupon Rate Formula= Total Annual Coupon Payment / Par Value of Bond * 100%**

Conversely, the equation of the coupon rate of a bond can be seen as the percentage of the face value or par value of the bond paid every year.

### Explanation of the Coupon Rate Formula

The formula for coupon rate can be computed by using the following steps:

**Step 1: **Firstly, figure out the face value or par value of the issued bond. It will be easily available in the funding proposal or the accounts department of the company.

**Step 2:** Next, determine the no. of periodic payments made during the course of a year. Then all the periodic payments are added up to calculate the total coupon payment during the year. In case of equal periodic payments, the total annual coupon payment can be computed by multiplying the periodic payments and the no. of payments made in the year.

**Total annual coupon payment = ****Periodic payment * No. of payments in a year**

**Step 3: **Finally, the equation of the coupon rate of the bond is calculated by dividing the total annual coupon payment by the par value of the bond and multiplied by 100% as shown above.

**Examples of Coupon Rate Formula (with Excel Template)**

Let’s see some simple to advanced examples of the Coupon Rate Formula to understand it better.

4.6 (319 ratings)

#### Coupon Rate Formula – Example #1

**Let us take an example of bond security with half-yearly coupon payments. Let us assume a company PQR Ltd has issued a bond having the face value of $1,000 and quarterly interest payments of $25. Do the Calculation of the coupon rate of the bond.**

Use the following data for the calculation of Coupon Rate Formula.

**Annual Coupon Payment**

- Annual coupon payment = 2 * Half yearly coupon payment
- = 2 * $25
- = $50

Therefore, the calculation of the coupon rate of the bond is as follows –

- Coupon Rate Formula
**=**$50 / $1,000 * 100%

**Coupon Rate of the Bond will be –**

Therefore, the coupon rate of the bond issued by PQR Ltd is 5%.

#### Coupon Rate Formula – Example #2

**Let us take another example of bond security with unequal periodic coupon payments. Let us assume a company XYZ Ltd has paid periodic payments of $25 at the end of 4 months, $15 at the end of 9 months and another $15 at the end of the year. Do the Calculation of the coupon rate of the bond if the par value is $1,000.**

Use the following data for the calculation of Coupon Rate Formula.

Therefore, the calculation of the coupon rate of the bond is as follows,

- Coupon Rate Formula
**=**$55 / $1,000 * 100%

**Coupon Rate of the Bond will be –**

- Coupon Rate of The Bond = 5.50%

Therefore, the coupon rate of the bond issued by XYZ Ltd is 5.5%.

#### Coupon Rate Formula – Example #3

**Dave and Harry are two bondholders of ABC Ltd. The company has made equal quarterly payments of $25. The par value of the bond is $1,000 and it is trading $950 in the market. Determine which statement is correct:**

**Dave said that the coupon rate is 10.00%****Harry said that the coupon rate is 10.53%**

Use the following data for the calculation of Coupon Rate Formula.

**Annual Coupon Payment**

- Annual coupon payment = 4 * Quarterly coupon payment
- = 4 * $25
- = $100

Therefore, the coupon rate of the bond can be calculated using the above formula as,

- Coupon Rate Formula
**=**$100 / $1,000 * 100%

**Coupon Rate of the Bond will be –**

- Coupon rate of bond = 10.00%

Therefore, Dave is correct. [Harry has mistakenly used market price of $950 in the place of par value for the calculation of coupon rate i.e. $100 / $950 * 100% = 10.53%]

### Relevance and Uses of Coupon Rate Formula

It is important to understand the concept of coupon rate equation because almost all types of bonds pay annual payment to the bondholder, which is known as coupon payment. Unlike other financial metrics, the coupon payment in terms of the dollar is fixed over the life of the bond. For example, if a bond with a face value of $1,000 offers a coupon rate of 5%, then the bond will pay $50 to the bondholder until its maturity. The annual interest payment will continue to remain $50 for the entire life of the bond until its maturity date irrespective of the rise or fall in market value of the bond.

Based on coupon rate and the prevailing market rate of interest, it can be determined whether a bond will trade at a premium, par or discount.

- A bond trades at a premium when the coupon rate is higher than the market interest rate, which means that the price of the bond will fall because an investor will be reluctant to purchase the bond at that value.
- Again the bond will trade at a discount when the coupon rate is lower than the market interest rate, which means the price of the bond will increase because an investor will be willing to purchase the bond at a higher value.
- A bond trades at par when the coupon rate is equal to the market interest rate.

### Recommended Articles

This has been a guide to what is Coupon Rate Formula. Here we discuss how to calculate the Coupon Rate of the Bond using practical examples and downloadable excel template. You can learn more about Accounting from the following articles –