Final answer:
A bond's annual interest divided by its face value is known as the coupon rate. This rate signifies the regular interest income the bondholder receives until maturity, and it remains constant despite market changes in interest rates.
Step-by-step explanation:
The bond's annual interest divided by its face value is referred to as the coupon rate. This rate represents the periodic interest payments that the issuer promises to pay bondholders.
The face value of a bond is the amount the issuer agrees to repay the bondholder at maturity. When you combine a bond's face value, interest rate, and maturity date, along with market interest rates, you can calculate the bond's present value.
This present value is the maximum amount a buyer would be willing to pay for the bond, though it may differ from the bond's face value. As market conditions change, interest rates fluctuate, affecting the trading value of bonds, but the coupon rate remains the same.