Definition
Clipping Coupons refers to the act of detaching interest coupons from a coupon bond to collect semiannual interest payments. In a traditional sense, this practice was associated with bearer bonds, which didn’t require registration, allowing the bondholder to collect interest merely by presenting the coupons. In more modern terms, clipping coupons has come to describe the act of cutting out discount coupons from newspapers, magazines, or online sources to save money on purchases.
Examples
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Financial Example:
- Bearer Bonds: A retired investor holds bearer bonds with physical coupons attached. Twice a year, the investor clips these coupons and presents them to a bank to receive interest payments.
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Consumer Example:
- Grocery Shopping: A homemaker regularly clips coupons from the Sunday newspaper to save on grocery bills. These coupons offer various discounts on household items, helping the family manage their monthly budget.
Frequently Asked Questions (FAQs)
What are coupon bonds?
Coupon bonds are a type of bond that pays interest to the holder at regular intervals. The bondholder must submit detachable coupons attached to the bond to collect interest payments.
What are bearer bonds?
Bearer bonds are unregistered bonds, with ownership determined solely by the physical possession of the bond. Interest is typically collected by clipping and submitting the coupons attached to the bond.
How did the term “clipping coupons” evolve?
Originally referring to collecting interest from coupon bonds, the term “clipping coupons” has evolved to describe cutting out and using discount coupons to save money on purchases.
Why are interest payments on bonds called coupons?
Interest payments on bonds are called coupons because, traditionally, the physical coupons attached to the bonds were clipped and presented to collect interest. This historical practice led to the naming convention.
Are bearer bonds still in use today?
Bearer bonds have become rare due to issues like theft and tax evasion. Most bonds today are registered bonds, where ownership and interest payments are recorded electronically.
- Coupon Bond: A bond that pays interest periodically through attached coupons.
- Registered Bond: A bond whose ownership is registered with the issuer, and interest payments are made directly to the registered owner.
- Bearer Bond: A bond not registered in the owner’s name; possession is akin to ownership.
- Discount Coupons: Certificates entitling the holder to a discount, often used in retail to reduce the purchase price of goods.
Online References
Suggested Books for Further Studies
- “The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More” by Annette Thau
- “Bond Markets, Analysis, and Strategies” by Frank J. Fabozzi
- “Common Sense Guide to Bond Investing” by Hildy Richelson and Stan Richelson
Fundamentals of Clipping Coupons: Finance Basics Quiz
### What did clipping coupons originally refer to in the context of bonds?
- [x] Collecting interest from coupon bonds
- [ ] Submitting coupons for shopping discounts
- [ ] Clipping newspaper articles
- [ ] None of the above
> **Explanation:** Clipping coupons originally referred to the act of collecting interest from coupon bonds by detaching and submitting the physical coupons attached to these bonds.
### What kind of bonds typically had coupons attached to them?
- [ ] Registered Bonds
- [ ] Corporate Bonds
- [x] Bearer Bonds
- [ ] Municipal Bonds
> **Explanation:** Bearer bonds typically had detachable coupons attached to them, which the bondholder would clip to collect interest payments.
### What has the expression "clipping coupons" come to describe in recent years?
- [ ] Collecting dividends from stocks
- [x] Cutting out and using discount coupons to save money on purchases
- [ ] Registering bonds electronically
- [ ] Redeeming frequent flyer miles
> **Explanation:** In recent years, the expression "clipping coupons" has come to describe cutting out and using discount coupons from newspapers, magazines, or online sources to save money on purchases.
### What type of bond ownership does not require registration?
- [ ] Registered Bonds
- [ ] Electronic Bonds
- [ ] Convertible Bonds
- [x] Bearer Bonds
> **Explanation:** Bearer Bonds do not require registration; ownership is determined solely by the possession of the bond.
### What caused the decrease in the use of bearer bonds?
- [ ] High returns on alternative investments
- [ ] Changes in interest rates
- [x] Issues like theft and tax evasion
- [ ] Government regulations on trading
> **Explanation:** Bearer bonds have become rare due to issues like theft and tax evasion, which prompted a move towards registered bonds.
### How are interest payments issued in the case of registered bonds?
- [ ] By clipping physical coupons
- [ ] By presenting the bond at a bank
- [x] Directly to the registered owner's account
- [ ] Through a third-party financial firm
> **Explanation:** Interest payments on registered bonds are made directly to the registered owner's account, eliminating the need for physical coupons.
### Can discount coupons be used for online shopping?
- [x] Yes, many retailers offer digital coupons for online use
- [ ] No, they are only valid in physical stores
- [ ] Only if the retailer provides a printed coupon
- [ ] None of the above
> **Explanation:** Many retailers offer digital coupons that can be used for online purchases, making it convenient to save money while shopping online.
### What is a common method for saving money on grocery bills?
- [x] Clipping discount coupons from newspapers
- [ ] Collecting dividends
- [ ] Refinancing a mortgage
- [ ] Trading stocks
> **Explanation:** Clipping discount coupons from newspapers is a common method for saving money on grocery bills. These coupons offer discounts on a variety of household items.
### Are bearer bonds still commonly issued today?
- [x] No
- [ ] Yes
- [ ] Only in specific sectors
- [ ] It varies by country
> **Explanation:** Bearer bonds have become rare and are not commonly issued today due to security concerns and regulatory changes.
### What is a practical benefit of using discount coupons for consumers?
- [ ] Increasing household debt
- [ ] Gaining investment income
- [x] Saving money on purchases
- [ ] Earning interest on savings accounts
> **Explanation:** A practical benefit of using discount coupons for consumers is saving money on purchases, helping to reduce household expenses and manage budgets effectively.
Thank you for exploring the intricacies of clipping coupons and testing your knowledge with our quiz. Keep enriching your finance acumen!
