Coupon – definition and meaning
The word coupon has several different meanings, depending on the context. It can mean a voucher, ticket, or document that we redeem for a rebate or discount when buying something. It may be the yearly interest that a bond pays. A coupon might also be a form in a magazine, newspaper, or advertisement that we fill in. We then cut it out and send it for purchase, a free sample, or an application for something.
In metallurgy, the term refers to a metal or metalwork sample that we submit to a testing agency. We might also send the free sample to a customer. So what types of coupons are there and how do you use a coupon accordingly?
Etymology of coupon
According to the Etymology Online Dictionary, the term first appeared in the English language meaning a ‘certificate of interest due on a bond’ in 1822. It was a certificate that the owner could cut from the bond and present for payment.
The word came from French Coupon, which means ‘a piece cut off.’ Couper in French means ‘to cut,’ while Coup means a ‘blow.’ In the 1860s, British travel agent Thomas Cook started using the term ‘discount ticket.’
It was not until 1906 that its meaning also widened to include forms or adverts that people filled in.
Coupon on a bond
A coupon payment on a bond is a quarterly, half-yearly, or annual interest payment. Bondholders receive the payments during the bond’s life. In other words, from when they bought it until it matures.
Historically, bond issuers issued them in the form of bearer certificates. In a bearer certificate, there was no owner’s name. However, whoever was in possession of it is legally the owner. In fact, to confirm proof of ownership, all you had to do was present the document.
The issuer attached several coupons to the certificate, one for each payment.
On each one’s due date, the owner would tear it off and present it for payment. The act of tearing it off was known as ‘clipping the coupon.’
Some bonds, however, such as zero-coupon bonds, have no coupons. These bonds make just one payment – the payment of the face value on their maturity date.
The coupon rate, when referring to a bond, is the annual interest rate. In most cases, the issuer pays the interest on a semiannual basis.
The rate is stated when the bond is issued until it reaches maturity. Bonds are types of IOUs or debts that governments, municipalities, and companies sell and people purchase.
According to the Financial Times’ Lexicon (glossary of terms), a coupon is:
“Interest paid on a bond through to maturity expressed as a percentage of the face value.”
We commonly use the terms coupons and vouchers interchangeably today. However, technically there is a difference in their usage.
We use love coupons to tell people we love them. They are a form of voluntary IOU or promissory note between individuals who are in love.
These coupons contain a promise from one of the partners in a relationship. They promise to engage in a romantic activity at a specific future time.
Love coupons typically have a relevant artistic drawing or image and a love promise to perform a romantic or intimate act. They may also contain redeeming conditions such as a date of expiration.
Apart from serving as a love note, people also use them as a very specialized form of a greeting card.
The love coupon may have a romantic-event value, such as a full-body massage or a romantic afternoon picnic. Some contain an afternoon at a spa, a candlelight dinner, or other more intimate and sensual treats.
A test coupon is a printed circuit board we use when testing the quality of a PWB fabrication process. PWB stands for printed wiring board. They are fabricated on the same panel as PWBs, usually at the edges.
People must make sure that the layers align properly. They must also ensure that all the circuits connect correctly.
‘Coupon’ in other languages: Cupón (Spanish), Cupom (Portuguese), Buono (Italian), Coupon (French), Coupon (German), Купон (Russian), Kupong (Swedish, Indonesian, Malay, Filipino, Polish), Kupón (Czech), クーポン (Japanese), 优惠券 (Chinese), Cheti (Swahili), كوبون (Arabic), कूपन (Hindi), and কুপন (Bengali).
Video – What is a coupon?
This Investopedia video explains what a coupon is. Specifically, when it refers to the interest rate on a bond. They used to be rectangles of paper attached to bonds that the owner would tear off, present each one at a specified date, and get paid.