What does the coupon interest rate represent?

The coupon interest rate represents the fixed interest rate paid to bondholders. This rate is established at the time the bond is issued and is expressed as a percentage of the bond's face value. It determines the periodic interest payments that the bondholder will receive throughout the life of the bond, typically paid annually or semi-annually.

Bondholders rely on the coupon interest rate to understand the income they will earn from their investment, independent of market fluctuations. This fixed nature differentiates the coupon rate from variable rates, which can change over time. Therefore, selecting the correct answer illustrates a clear understanding of how fixed-income securities operate and the income expectations that bond investors have from their investments.