A
fixed income instrument such as a
bond,
bill or
note 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 or
semi-annually. Other bonds, for example
Municipals or
Corporates 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.