Advanced English Dialogue for Business – Coupon bonds

Listen to a Business English Dialogue About Coupon bonds

Jade: Hi Jordan, have you heard about coupon bonds in finance? I’ve seen the term, but I’m not entirely sure what it means.

Jordan: Hey Jade, coupon bonds are fixed-income securities that pay periodic interest payments, known as coupons, to bondholders. These payments are typically made semi-annually or annually and represent a fixed percentage of the bond’s face value.

Jade: Oh, I see. How do coupon bonds differ from other types of bonds?

Jordan: Coupon bonds differ from other types of bonds, such as zero-coupon bonds, in that they pay regular interest payments to bondholders throughout the bond’s term, whereas zero-coupon bonds do not pay periodic interest but are instead sold at a discount to their face value and redeemed at face value upon maturity.

Jade: That makes sense. Can you explain how the coupon rate of a bond is determined?

Jordan: The coupon rate of a bond is determined at the time of issuance and is typically based on prevailing market interest rates, credit quality of the issuer, and the term to maturity of the bond. Higher-quality issuers and longer-term bonds generally offer lower coupon rates, while riskier issuers and shorter-term bonds may offer higher coupon rates to compensate investors for taking on additional risk.

Jade: Got it. How do investors benefit from investing in coupon bonds?

Jordan: Investors benefit from investing in coupon bonds by receiving regular interest payments, which provide them with a steady income stream and a predictable return on their investment. Additionally, coupon bonds offer the potential for capital appreciation if market interest rates decline, as the fixed coupon payments become more valuable relative to newly issued bonds with lower coupon rates.

Jade: Thanks for explaining, Jordan. It’s helpful to understand how coupon bonds work and their role in fixed-income investing.

Jordan: You’re welcome, Jade. Coupon bonds are a popular investment choice for investors seeking income and stability in their portfolios. If you have any more questions, feel free to ask!