In the financial world, “coupon” represents the interest rate on a bond. Typically the coupon is paid semi-annually. Coupon is short for “coupon rate” or “coupon percentage rate.”
The use of the word coupon to describe the interest rate on a bond is derived from the fact that bonds used to be issued in physical, paper, form. Attached to the bonds were coupons that had to be removed from the bond and redeemed with the issuer in order to receive the interest payment. Bond owners literally had to “clip” the coupon off the bond. Coupon is sometimes used in reference to retired investors who have most of their wealth in fixed income securities and spend their retirement years clipping coupons.
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