Coupon Payment Calculator

Omni's coupon payment calculator is a simple tool that lets you quickly determine the periodic coupon payment on a bond. Bonds are one of the most reliable sources of fixed income for investors. This article discusses coupon payments, how to calculate coupon payments, and the different types of coupon payments.

The coupon payment is the interest paid by a bond issuer to a bondholder at each payment period until the bond matures or it is called. The payment schedule can be quarterly, semiannually or annually, depending on the agreed time. The payout is heavily determined by the interest rate of the bond.

When a bond is first issued, the bond's price is its face value. The bond issuer pays a bondholder a percentage of the face value every year. This percentage is also referred to as the coupon rate or nominal yield. Consequently, the coupon rate determines the total amount paid as coupon payments in a year.

Assuming you purchase a 30-year bond at a face value of $1,000 with a fixed coupon rate of 10%, the bond issuer will pay you: $1,000 × 10% = $100 as a coupon payment. If the bond agreement is semiannual, you'll receive two payments of $50 on the bond's agreed payment dates.

You can quickly calculate the coupon payment for each payment period using the coupon payment formula:

Coupon payment = face value × (annual coupon rate / number of payments per year)

= $1,000 × (10% / 2) = $1,000 × 5% = $50

With the coupon payment calculator, you can find the periodic coupon payment for any bond by simply inputting the number of payments per year on the bond indenture.

Let's say that, after five years, you decided to sell the bond for $1,100. The new bondholder will still earn $100 per year. But while you were earning 10% on your $1,000 investment, the return or current yield on the new bondholder’s investment is: $100/$1,250 = 0.91 = 9.1%.

Therefore, while a bond's coupon rate or nominal yield may remain the same throughout the bond duration, the current yield changes with the bond's market value.

The formula to calculate the current yield on a bond is:

Current yield = annual coupon payments/market value of the bond

Except when you're buying a bond at its face value, you should be concerned about its current yield when evaluating its yield to maturity or yield to call.

Based on the type of bond and its coupon interest rates, coupon payments can be classified as:

• Fixed coupon payment — The amount paid in each period is constant throughout the life of the bond because the coupon rate remains fixed.

• Variable coupon payment — The amount paid in each period varies because the coupon rate is linked to a reference rate of interest, such as LIBOR or Euribor. For example, a bond indenture can define a coupon rate equal to the LIBOR rate plus 0.20%. In that case, the coupon rate gets recalculated periodically.

• Deferred coupon payments — When the initial coupon payments are deferred for a certain period.

• Accelerated coupon payments — Here, the initial coupon payments are high but decrease over the bond's life.