Coupon, nominal value, redemption and terms of issue - a bond glossary

Nominal value is the base amount used to calculate coupons and usually returned to the bondholder at redemption. A quoted price as a percentage of nominal value tells you what the market pays for that base amount, but settlement may require adding accrued interest.

A coupon is the interest rate or interest amount for a period. In a fixed-rate bond, the rate is specified in advance. In a floating-rate bond, the coupon follows a formula, for example reference rate plus margin. In a zero-coupon bond, return comes from the difference between purchase price and redemption.

Maturity is the date when the issuer should repay nominal value, unless early redemption, a call, a put or an event of default changes the schedule. For longer series, maturity alone is not enough because early redemption options can shorten the effective horizon.

The terms of issue are the core bondholder document. They define payment schedule, interest formula, collateral, covenants, bondholder representation and events that can lead to early redemption or other actions.

These terms must be read together. A high coupon above nominal price can produce lower yield to maturity, while a low coupon below nominal price can look better after redemption is considered. Without schedule and documents, it is easy to compare instruments that are not comparable.