What does the term 'par value' of a bond refer to?

What does the term 'par value' of a bond refer to?

• A. Par value is the bond's current market price
• B. Par value is the issue price
• C. Par value is the coupon rate
• D. Par value is the amount repaid at maturity

Answer: (D)

Par value is the bond’s face value—the principal that will be repaid to you when the bond matures. It serves as the base amount used to calculate interest payments, since the coupon rate applies to this amount. For example, if a bond has a par value of $1,000 and a 5% coupon, you’d receive $50 each year in interest. Regardless of how the bond’s market price moves over time, the issuer promises to pay back the par value at maturity. The initial price at which the bond was sold (issue price) can be above or below par, and the coupon rate is determined as a percentage of par, not of the price you paid or the current market price.

Par value is the bond’s face value—the principal that will be repaid to you when the bond matures. It serves as the base amount used to calculate interest payments, since the coupon rate applies to this amount. For example, if a bond has a par value of $1,000 and a 5% coupon, you’d receive $50 each year in interest. Regardless of how the bond’s market price moves over time, the issuer promises to pay back the par value at maturity. The initial price at which the bond was sold (issue price) can be above or below par, and the coupon rate is determined as a percentage of par, not of the price you paid or the current market price.