LeoGlossary: Par Value
The amount originally paid for a bond and the amount that will be repaid..
A bond’s par value is also known as the face amount. This is the amount of principal that will be paid to the bondholder when the bond matures.
For example, the owner of a 20-year bond with a par value of $5,000 will receive $5,000 at the end of the 20-year term, in addition to any periodic interest previously paid.
Depending on how the bond’s coupon rate compares to current market interest rates, the bond may be issued or traded for more or less than its par value. If the market rate is 5 percent, for example, a $5,000 bond with a 4 percent coupon will be less attractive to potential buyers than other investments. As a result, the bond will sell for less than $5,000, its par value, or at a discount. Conversely, a $5,000 bond with a 6 percent coupon will sell for more than its par value, or at a premium.
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