What is a bond's coupon rate?

The coupon rate of a bond refers specifically to the interest rate that is paid by the bond issuer to the bondholders. This rate is expressed as a percentage of the bond's face value and determines the periodic interest payments that the bondholders will receive throughout the life of the bond. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the bondholder will receive $50 in interest each year.

The significance of the coupon rate lies in its role in defining the cash flows associated with the bond investment. It helps investors assess the income they will generate from the bond before maturity. Understanding the coupon rate is fundamental in bond investment analysis because it influences the bond's market price, particularly in relation to prevailing interest rates.

While the other options mention aspects related to bonds, they do not accurately define the coupon rate. The total interest paid over the life of the bond refers to the sum of all coupon payments, the face value is the principal amount that is returned at maturity, and the yield at maturity considers the bond’s total return which may include variances from the coupon rate due to changes in market conditions. Each of these points provides critical information about bonds, but only the interest rate paid to