The interest rate that a bond promises to pay is called what?

The interest rate that a bond promises to pay is known as the coupon rate. This rate is expressed as a percentage of the bond's face value and specifies the amount of interest the bondholder will receive annually. When a bond is issued, the coupon rate is fixed, meaning that the bondholder will receive that set payment at regular intervals until maturity, regardless of fluctuations in market interest rates or the bond's market price.

Understanding the coupon rate is important because it directly impacts the attractiveness of the bond to potential investors. A higher coupon rate typically makes a bond more appealing, as it means higher income from the bond relative to its price. Conversely, if market interest rates rise above the coupon rate, the bond may become less attractive, leading to a decrease in its market value.

The other concepts mentioned—such as yield, discount rate, and market rate—relate to different aspects of bond valuation and performance, but they do not describe the specific fixed interest payment that the bond commits to paying over its term. The yield refers to the overall return on the bond, which can fluctuate based on market conditions, while the market rate pertains to current prevailing interest rates in the economy.