face value

Look at a bond certificate and you will see a number printed on its face — say 1,000. That printed number is the amount the company promises to repay the holder when the bond matures, no matter what the bond traded for in between. It is the anchor of the whole arrangement, and accountants call it the face value.

Face value (also called par value or principal) is the stated amount of a bond that the issuer will repay at maturity, and the base on which periodic interest is calculated. If a bond has a face value of 1,000 and a coupon rate of 6 percent, the company pays 60 of interest per year regardless of the price investors actually paid for the bond. A crucial point: the price an investor pays can be above or below face value depending on market interest rates, but the face value itself never changes — it is fixed by the bond's terms. Bonds are commonly issued in face-value units of 1,000.

Face value matters because it is the reference point for two of a bond's most important cash flows: the interest payments (coupon rate times face value) and the final repayment at maturity. When market rates rise above the coupon, the bond sells below face value (a discount); when market rates fall below the coupon, it sells above (a premium). Either way, the company still repays exactly the face value at the end, which is why understanding face value is the first step to understanding discounts, premiums, and a bond's carrying value.