What is the difference between coupon rate and market rate of interest?

The coupon rate is the fixed annual interest payment a bond issuer agrees to pay to bondholders, expressed as a percentage of the bond's face value. In contrast, the market rate of interest fluctuates based on prevailing economic conditions and reflects the return investors require for lending their money. When the market rate exceeds the coupon rate, the bond may trade at a discount; when the market rate is lower, the bond may trade at a premium. Essentially, the coupon rate is set at issuance, while the market rate varies over time.