The coupon rate determines how much interest a bond pays each year, expressed as a percentage of face value. For example, a 5% coupon on a $1,000 bond pays $50 annually, typically split into semiannual payments of $25. The term 'coupon' comes from the old practice of paper bonds with detachable coupons that bondholders would physically clip and redeem for interest payments. Most bonds today pay regular coupons (fixed or floating), but zero-coupon bonds pay no interest — they're issued at a discount and mature at par, with all return coming from price appreciation.