What is the stated interest rate of a bond payable?
The stated interest rate of a bond payable is the annual interest rate that is printed on the face of the bond. The stated interest rate multiplied by the bond's face amount (or par amount) results in the annual amount of interest that must be paid by the issuer of the bond. For example, if a corporation issues $10,000,000 of bonds having a stated interest rate of 6%, it is promising to pay interest of $600,000 each year (usually $300,000 semiannually).
The stated interest rate of a bond payable is also known as the face interest rate, the nominal interest rate, the contractual interest rate, and the coupon interest rate.
Generally, a bond's stated interest rate is fixed (remains constant) for the life of the bond. As a result a bond's interest payments form an ordinary annuity for the life of the bond. On the other hand, the market interest rate for the bond will likely change often. A change in the market interest rate will cause the present value of the interest payments (and the present value of the maturity amount) to change in the opposite direction. For instance, when the market interest rate increases the present value of an existing bond will decrease.