A coupon is the primary source of income from a bond. The rate is set as a percentage per annum of the face value, not the purchase price: if the face value is 1 million sum and the rate is 20% per annum with payments twice a year, the holder receives 100 thousand sum every six months regardless of the purchase price.
This leads to an important consequence: coupon rate and actual investment return are different values. By purchasing a bond below face value, an investor receives a return higher than the coupon rate; above face value—lower. Comparing different issues requires comparing yield to maturity.
Coupons can be fixed for the entire term, floating—tied to a market indicator and changing with it—or indexed. Floating coupons protect against rising rates but eliminate certainty in future payment amounts.
When purchasing on the secondary market between coupon dates, the buyer additionally pays the seller accrued coupon income—the portion of the coupon attributable to the actual holding period. Therefore, the amount debited from the account exceeds the stated bond price, and this is not a commission but a settlement between investors.