A:

A bond's coupon rate is simply the rate of interest it pays each year, expressed as a percentage of the bond's par value. The par value is the bond's face value, or the amount the issuing entity must pay the bondholder once the bond matures. Most bonds have a clearly stated coupon rate percentage. However, calculating the coupon rate using Microsoft Excel is simple if all you have is the coupon payment amount and the par value of the bond.

The formula for the coupon rate is the total annual coupon payment divided by the par value. Some bonds pay interest semi-annually or quarterly, so it is important to know how many coupon payments per year your bond generates.

In Excel, enter the coupon payment in cell A1. In cell A2, enter the number of coupon payments you receive each year. If the bond pays interest once a year, enter 1. If you receive payments semi-annually, enter 2. Enter 4 for a bond that pays quarterly. In cell A3, enter the formula =A1*A2 to yield the total annual coupon payment.

Moving down the spreadsheet, enter the par value of your bond in cell B1. Most bonds have par values of $100 or $1,000, though some municipal bonds have pars of $5,000. In cell B2, enter the formula "=A3/B1" to yield the annual coupon rate of your bond in decimal form.

Finally, select cell B2 and hit CTRL+SHIFT+% to apply percentage formatting.

For example, if a bond has a par value of $1,000 and generates two $30 coupon payments each year, the coupon rate is ($30 * 2) / $1,000, or 0.06. Once the cell format is adjusted, the formula yields a return rate of 6%.

RELATED FAQS
  1. How do debit spreads impact the trading of options?

    Find out what it means when a bond has a coupon rate of zero and how a bond's coupon rate and par value affect its selling ... Read Answer >>
  2. If I buy a $1,000 bond with a coupon of 10% and a maturity in 10 years, will I receive ...

    See how fixed-income security investors can expect to use coupon rates on semi-annual payments if the bond or debt instrument ... Read Answer >>
  3. What is the difference between yield to maturity and the coupon rate?

    A bond's coupon rate is the actual amount of interest income earned on the bond each year based on its face value. Read Answer >>
  4. How does the money from the interest on my bond get to me?

    When you buy a regular coupon bond, you are entitled to a coupon, which is typically paid at regular intervals, and the face ... Read Answer >>
  5. What is a stripped bond?

    A stripped bond is a bond that has had its main components broken up into a zero-coupon bond and a series of coupons. Read Answer >>
Related Articles
  1. Investing

    Comparing Yield To Maturity And The Coupon Rate

    Investors base investing decisions and strategies on yield to maturity more so than coupon rates.
  2. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  3. Personal Finance

    6 Tricks To Make Coupons Work For You

    Use these strategies to counteract the stores' and manufacturers' coupon tactics and come out ahead.
  4. Investing

    4 basic things to know about bonds

    Learn the basic lingo of bonds to unveil familiar market dynamics and open to the door to becoming a competent bond investor.
  5. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  6. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  7. Financial Advisor

    How Rising Rates Impact Bond Mutual Funds

    The interest rate increase by the Fed was one of the most widely anticipated in history. Here's what it means for bond mutual funds.
  8. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  9. Investing

    Corporate Bonds for Retirement Accounts

    Corporate bonds are usually the preferred choice in retirement accounts. Here are some of the benefits of corporate bonds, and strategies for a portfolio.
  10. Personal Finance

    The Top 6 Online Coupons And How To Use Them

    Learn the basics of couponing so that you can get creative with your savings strategy and evolve beyond the basic coupon book.
RELATED TERMS
  1. Current Coupon

    A current coupon refers to a security that is trading closest ...
  2. Coupon

    A coupon is the annual interest rate paid on a bond, expressed ...
  3. At Par

    At par is a term that refers to a bond, preferred stock or other ...
  4. Zero-Coupon Bond

    A zero-coupon bond is a debt security that doesn't pay interest ...
  5. Cum Coupon

    Cum coupon is a bond priced with the expectation that a seller ...
  6. And Interest

    And interest is a slang phrase used when quoting the price of ...
Trading Center