Nominal coupon rate - Financial definition
Concise definition of the term nominal coupon rate
The nominal coupon rate is the rate of interest that is due to the holder of a bond on each coupon date. The coupon rate is expressed as a percentage of the bond's nominal.
Comprehensive definition of the term nominal coupon rate
The coupon rate is stated in the bond's prospectus and is one of its main characteristics. It is expressed as a percentage of the bond's face value.
For fixed-rate bonds, which represent the majority of bonds, the coupon rate does not change during the lifetime of the security. There are however bonds whose coupon rate is variable. Variable coupons can be indexed on an interest rate index, or follow an even more complex calculation mode.
Example:
An investor holds 100 000 € in nominal of a German government bond, the Bund 2.00% 15-08-2023.
With a nominal coupon rate of 2%, he will receive each year, on the coupon date, a gross interest payment of 100 000 x 2% = 2 000 €.
An investor holds 100 000 € in nominal of a German government bond, the Bund 2.00% 15-08-2023.
With a nominal coupon rate of 2%, he will receive each year, on the coupon date, a gross interest payment of 100 000 x 2% = 2 000 €.
The bond's coupon rate must not be mixed up with the bond's yield.