Coupon

A coupon is a financial instrument or certificate that entitles the holder to a specified discount or rebate when purchasing a particular product or service.
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Updated on Jun 7, 2024
Reading time 3 minutes

Key Takeaways

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  • Coupons are vouchers or certificates that offer discounts or rebates to consumers when purchasing goods or services.
  • In the context of bonds, coupons represent the periodic interest payments made to bondholders by the issuer.
  • Coupons serve as incentives for consumer spending and as a source of income for bond investors.

What is a Coupon?

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A coupon is a form of incentive or discount offered to consumers to encourage purchases of goods or services. It can take the form of a physical voucher, digital code, or printable coupon that provides a specified reduction in the purchase price when presented at the point of sale. Coupons are commonly used in retail and e-commerce to attract customers, promote products, and boost sales.

In the context of bonds or fixed-income securities, a coupon refers to the periodic interest payment made by the issuer to the bondholder. It represents the contractual interest rate agreed upon at the time of issuance and is typically paid semi-annually or annually until the bond reaches maturity.

Importance of Coupons

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  • Consumer Incentives: Coupons incentivize consumers to make purchases by offering discounts, rebates, or special offers, thereby stimulating demand and driving sales.
  • Marketing Strategy: Coupons are a popular marketing tool used by businesses to attract new customers, retain existing ones, and promote brand loyalty.
  • Investor Income: In the bond market, coupons serve as a source of income for bond investors, providing a predictable stream of interest payments over the life of the bond.

How Coupons Work

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  1. Issuance: Coupons are distributed by retailers, manufacturers, or service providers through various channels, such as print media, email newsletters, mobile apps, or websites.
  2. Redemption: Consumers present coupons at the point of sale to receive discounts or rebates on eligible products or services. Coupons may have specific terms and conditions, such as expiration dates or purchase requirements.
  3. Bond Payments: In the bond market, coupons represent the periodic interest payments made by the bond issuer to bondholders. Investors receive coupon payments based on the nominal value (face value) of the bond and the coupon rate specified in the bond’s indenture.

Examples of Coupons

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  • Retail Coupons: Printable coupons distributed by supermarkets offering discounts on groceries or household items.
  • Online Coupons: Digital coupon codes provided by e-commerce websites for discounts on online purchases or free shipping.
  • Bond Coupons: Semi-annual interest payments made by a corporate or government bond issuer to bondholders based on the bond’s coupon rate and face value.

Real World Application

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  • Consumer Savings: Coupons enable consumers to save money on everyday purchases, such as groceries, clothing, dining, or entertainment.
  • Business Promotion: Businesses use coupons to drive traffic to their stores, introduce new products, clear inventory, or reward loyal customers.
  • Investment Income: Bond investors receive regular coupon payments as a form of fixed-income investment, providing a steady stream of income over the bond’s term.

Coupons play a significant role in consumer spending, marketing strategy, and investment income. Whether as discounts for retail purchases or interest payments for bond investments, coupons serve as valuable incentives for consumers and investors alike. Understanding how coupons work and their impact on purchasing behavior and financial markets is essential for businesses, consumers, and investors.


Sources & references

Arti

Arti

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Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000 Invezz related data points, has read every piece of research, news and guidance we\'ve ever produced, and is trained to never make up new...