The coupon rate is the amount of annual interest income a bondholder receives based on the face value of the bond he or she owns. When the government or corporations issue bonds to raise money, the issuers are required to make periodic payments to the buyers based on the par value, at the coupon rate specified in the issued certificate of the bond.

The issue is required to make annual interest payments until maturity of the bond when the bondholder gets back the face value. The formula for calculating the coupon rate is:

Coupon Rate = Annualize Interest / Par Value of Bond