The coupon payment on a bond is best described as

• A. The annual or semi-annual interest paid to bondholders
• B. The principal repaid at maturity
• C. A dividend paid to stockholders
• D. A one-time issuance fee to the issuer

Answer: (A)

Coupon payments are the regular interest the bond issuer promises to pay bondholders, based on the bond’s face value and its coupon rate. They’re typically fixed and delivered on a set schedule, often annually or semi-annually. For example, a bond with a par value of 1,000 and a 5% coupon pays 50 per year, usually 25 every six months. This payment is distinct from the principal repayment at maturity (the par value returned at the end) and from dividends to stockholders, and it’s not a one-time issuance fee. Some bonds are zero-coupon, which means there are no periodic coupon payments—the investor earns through the difference between the purchase price and the par value received at maturity.