A fixed income
instrument such as a bond
pays a predetermined amount of cash
at regular intervals.
This amount - a percentage
of par, or the face value
of the instrument, is determined by two factors : the payment frequency, and the coupon
The coupon is expressed in percentage form, e.g., 6%, 8%, etc. The amount received by the investor is called the coupon payment
Payment frequency is typically defined according to the instrument itself - US
Government bonds, for example, pay twice a year
. Other bonds, for example Municipal
s or Corporate
s may pay only once a year.
In the example
above, the owner of a 6% US Government bond would receive a $30 twice a year.