When an investor purchases a bond, the bond issuer periodic interest payments known as the coupon rate. The bond issuer pays interest annually or semi-annually till maturity. Therefore, a 10% coupon bond means the bond issuer will pay a 10% coupon every year on the bond’s face value.  For example, The 10% coupon bond has a face value of Rs.1000 for 10 years. This means that the bondholder will receive Rs.100 every year for the next 10 years. The effective interest earned is 10%. Similarly, if the bond is bought above its face value, i.e. Rs.2000. The bondholder will still get Rs.100 only. Here, the interest earned would be only 5% ( Rs.100 of Rs.2000). Likewise, if the bond has been purchased below its face value, say Rs.500. The bondholder will continue to receive Rs.100 of coupon payment, but the interest earned would be 20% (Rs. 100 of Rs.500).