What Is the Face Value of a Bond and How It Differs From Market Value 2025

After finding a broker and you agree on the trade, you should ensure that you will not pay a hefty markup. Even though ‘excessive’ is relative, you shouldn’t incur a cost that exceeds three months of interest.

The face value of a life insurance policy, often referred to as the death benefit, is the amount paid out to the beneficiaries upon the death of the policy owner. The death benefit value also directly relates to the cost of the policy. The coupon payment on a bond is calculated as of the product of the face value and coupon rate, or interest rate.

Contingent on the interest rate environment and external factors, a bond can be issued at (and trade at) a discount, par, and premium to par (i.e. the value at issuance). Both terms, the face and par value, refer to the value of a security at issuance, and therefore the repayment amount at maturity (or principal). Likewise, the par value is the original nominal value of the instrument at issuance. The par value is often set to determine the minimum legal capital for stocks (i.e. an arbitrary figure for recordkeeping). Face Value is the nominal or dollar value ascribed to a particular security, such as a bond or stock, by the issuer on the date of original issuance. The sad truth is that some dealers are not the best to build your entire investment portfolio.

How Do Bonds Work?

Time to maturity also usually influences bond prices; however, the exact effect depends on the shape of the yield curve. A normal yield curve features lower interest rates for short-term bonds and higher interest rates for long-term bonds. The credit rating for a bond is determined by bond rating companies, such as Moody’s or Standard & Poors. Lower ratings generally cause a bond’s price to fall since it is not as attractive to buyers.

Understanding Bond Prices and Yields

However, the face value is not the only return a bondholder will receive. You’ll also receive interest payments, which are likewise established at the outset. This is in addition to the issuer paying you back the bond’s face value on its maturity date. The need to change the yield to reflect current market conditions drives the price changes. In the same way, improvements in the company’s situation allow it to raise funds at lower rates.

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On the other hand, the market value represents the price that an investor agrees to purchase and the issuer agrees to sell a specific security. This value often fluctuates significantly based on various factors, such as supply and demand and current interest rates. Now, the coupon rate of the bond and the prevailing interest rates will collectively determine if the bond will trade at face value, below face value or above face value. Just so that we are on the same page, coupon rates are the amount you will regularly receive from the bond issuer until the bond matures. The coupon rate is compensation for issuing the corporation, agency or government with the loan.

Why Is My Bond Worth Less Than Face Value?

This is the most common shape and reflects the market expectation of stable or rising interest rates over time. It’s particularly useful for comparing investments with different compounding periods, meaning how often a bond makes interest payments. Understanding your bond’s face value is crucial in assessing its investment potential. Being aware of coupon dates (when interest payments are made) and considering diversified portfolios, guided by a financial advisor’s expertise, are prudent steps in bond investing. Aside from knowing your bond’s face value, be sure you’re well-versed in its coupon dates. While frequency can vary from bond to bond, they’re usually annual or semi-annual.There are also zero-coupon bonds, which means that the bond issuer pays no interest on the bond’s face value.

• It considers all possible call dates and other features that could affect the bond’s return.
• Our Product Disclosure Statement (PDS) and Target Market Determination provides important information about our products and who our products are more likely to be suited to.
• It’s important to note that if you do take a loan out against your policy, it reduces the death benefit that your beneficiaries would receive in the event of your death.
• The annual coupon payment is calculated by multiplying the face value by the annualized coupon rate (or interest rate), which comes out to an $50 coupon payment per annum.
• These principles are governed by a dollar figure in which investors are more than willing to trade the particular security at.

In short, the higher the compounding frequency, the higher the return (or yield) on a bond issuance — all else being equal. Note, however, the face value of the security is fixed, irrespective of the compounding frequency. Instead, the frequency of compounding significantly affects the future value, especially over longer term periods.

The face value refers to the nominal value printed on a financial instrument. For example, the face value of a bond is the amount that must be repaid at maturity (or the stated value of a stock at issuance — i.e. the minimal amount set in the corporate charter. Before we start, we should point out that this list is in no way exhaustive.

Market value vs face value

• Suppose a publicly-traded consumer goods company decides to raise capital via the issuance of corporate bonds to fund the production of a new manufacturing facility.
• Third-party data is obtained from sources believed to be reliable; however, Empower cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose.
• Instead, investors in a company’s common stock pay market value, which is determined by supply and demand.
• A bond yield is a percentage that represents the annual income you receive from a bond relative to its current market price.
• A bond’s face value is the amount the issuer provides to the bondholder, once maturity is reached.
• However, the yield curve may flatten if there is widespread anticipation that interest rates will remain unchanged.

For example, suppose a bond has a face value of $1,000 and an annual coupon rate of 5%. The annual coupon payment is calculated by multiplying the face value by the annualized coupon rate (or interest rate), which comes out to an $50 coupon payment per annum. By multiplying the face value by the coupon rate, we can determine the periodic interest owed by the borrower—or coupon payment—as part of the financing arrangement.

The face value, or par, of a bond is the amount the issuer provides to the bondholder once maturity is reached. A bond may have an additional interest rate, or the profit may be based solely on the increase from a below-par original issue price and the face value at maturity. Our free money tools the face value of a bond is typically bring your accounts together in one place so you can monitor your investments and plan for your big financial goals. If a bond is issued at the standard price point (i.e. $1,000), the bond is said to be issued at par. But if issued below or in excess of $1,000, the bond is said to be issued “below par” and “above par”, respectively.

One of the main benefits of investing in bonds is the regular income you’ll earn based on the payment schedule of the bond. This income is useful for investors who are retired or seek more income from their portfolio which can be spent or reinvested. There are five core benefits of investing in bonds including steady income, portfolio diversification and capital preservation. Bonds can provide meaningful income to retirees, help investors to ride out market downturns and decrease portfolio volatility. There are four types of bonds you should know, each with their own risk profiles, coupons, tax implications and risks and rewards.