How does a coupon bond pay its investors?

A coupon bond pays its investors by providing periodic interest payments, known as coupon payments, throughout the life of the bond. These payments are typically made annually or semi-annually and represent a fixed percentage of the bond's face value, or principal amount. At maturity, the bond issuer repays the bond's face value to the bondholder. This structure allows investors to receive steady income from the bond until it matures, at which point they recoup the initial investment. This characteristic makes coupon bonds attractive to those seeking predictable income streams in their investment portfolios.

Other options do not accurately describe how coupon bonds operate. For example, offering variable interest rates would characterize floating-rate bonds rather than fixed coupon bonds. Similarly, requiring full payment upfront without periodic interest aligns more closely with zerobonds, which do not provide coupon payments but are instead sold at a discount and mature at face value. Lastly, equity shares are fundamentally different from bonds, as they represent ownership in a company rather than a loan to be repaid with interest.