What is a bond’s coupon rate?

A bond’s coupon rate represents the interest rate that the bond issuer agrees to pay to bondholders, typically expressed as a percentage of the bond's face value. This rate determines the regular interest payments that bondholders will receive throughout the life of the bond. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the bondholder will receive $50 each year until the bond matures.

The coupon rate is a critical factor for investors, as it directly impacts the income they earn from holding the bond. It also plays a significant role in determining the bond's price in the secondary market, as investors assess whether the coupon payments are attractive relative to current market interest rates.

In contrast, the other options do not accurately define the coupon rate. The total amount an investor can make from selling a bond pertains to the bond’s market price, not its coupon rate. The duration until the bond matures is related to the bond's maturity date, which is separate from the interest payments represented by the coupon rate. Lastly, the fee associated with purchasing the bond would not fall under the definition of the coupon rate, as that typically concerns transaction costs rather than the interest payments made to bondholders.