The coupon in finance is a term that pertains to the bond market, and indicates the periodic interest that the issuer (State or company) pays to investors/bondholders.
The term coupon owes its novelty to the fact that, in the early days of the bond market, there were bonds with paper coupons that had to be detached and presented to the bank in order to see the accrued interest paid.
The coupon can be:
- fixed - the interest linked to the bond includes a fixed coupon to be delivered at pre-established intervals;
- variable - the interest on the bond is linked to the indexation of the coupon based on variables such as inflation, a bank interest rate, the value of an exchange rate, etc.;
- absent - there are bonds that do not provide for ex-dividend coupons. The profit on the investment is given exclusively by the difference between the maturity price and the purchase price.
