What Is the Face Value of a Bond? - SmartAsset.com

Face value is the amount of money promised to the bondholder upon the bond's maturity. By contrast, a bond's market value is how much someone ... MenuburgerClosethinFacebookTwitterGoogleplusLinkedinRedditEmailarrow-right-smarrow-rightLoadingHomeBuyingCalculatorsHowMuchHouseCanIAfford?MortgageCalculatorRentvsBuyClosingCostsCalculatorHelpfulGuidesHomeBuyingGuideVeteranHomeBuyingGuideCompareRatesToday'sMortgageRates30-YearMortgageRates15-YearMortgageRates5/1ArmMortgageRates7/1ArmMortgageRatesLenderReviewsQuickenLoansMortgageReviewRocketMortgageReviewChaseMortgageReviewBetter.comMortgageReviewWellsFargoMortgageReviewJ.G.WentworthMortgageReviewMoreMortgageLenderReviewsTaxesCalculatorsIncomeTaxCalculatorTaxReturnCalculatorPropertyTaxCalculatorPaycheckCalculatorRetirementTaxesCalculatorHelpfulGuidesTaxGuideLearnMoreHowtoFillOutW-4BestTaxSoftwareBestFreeTaxSoftwareTaxSoftwareReviewsTurboTaxReviewCreditKarmaTaxReviewH&RBlockReviewTaxSlayerReviewTaxActReviewRetirementCalculatorsRetirementCalculator401(k)CalculatorSocialSecurityCalculatorHelpfulGuidesRetirementGuideFinancialAdvisorGuideEstatePlanningGuideFinancialAdvisorsFindaFinancialAdvisorFinancialAdvisorsNYCFinancialAdvisorsAustinRobo-AdvisorReviewsAcornsReviewAllyInvestReviewBettermentReviewWealthfrontReviewBankingCalculatorsSavingsCalculatorCompareAccountsCompareSavingsAccountsCompareCheckingAccountsCompareCDRatesCompareMoneyMarketAccountsHelpfulGuidesChecking&SavingsGuideBestBankAccountsBestSavingsAccountsBestMoneyMarketAccountsBestCDRatesBestCheckingAccountsBankReviewsCapitalOneBankingReviewSynchronyBankingReviewAllyBankReviewMarcusbyGoldmanSachsReviewInvestingCalculatorsInvestmentCalculatorAssetAllocationCalculatorCapitalGainsTaxCalculatorInflationCalculatorCompareAccountsOnlineBrokerageAccountsHelpfulGuidesInvestingGuide529PlansbyStateLearnMoreWhatisaMutualFund?WhatisanIndexFund?HowDoestheStockMarketWork?WhatareBonds?InvestingAdviceWhatisaFiduciary?WhatisaCFP?SmartReadsAboutPressTermsofServicePrivacyPolicyMoreCreditCardsBestCreditCardsBestCreditCardsHelpfulGuidesCreditCardsGuideCompareCardsWhatistheBestCreditCardforYou?LifeInsuranceCalculatorsHowMuchLifeInsuranceDoINeed?CompareQuotesLifeInsuranceQuotesHelpfulGuidesLifeInsuranceGuideRefinanceCalculatorsRefinanceCalculatorCompareRatesCompareRefinanceRatesHelpfulGuidesRefinanceGuidePersonalLoansCalculatorsPersonalLoanCalculatorCompareRatesPersonalLoanRatesHelpfulGuidesPersonalLoansGuideStudentLoansCalculatorsStudentLoanCalculatorCompareRatesStudentLoanRefinanceRatesHelpfulGuidesStudentLoansGuideI'manAdvisorFindanAdvisorSearch Tapontheprofileicontoedityourfinancialdetails.GotItShareTweetWhatIstheFaceValueofaBond?RachelCauteroJan15,2020ShareBondsareatypeofdebtsecurityusedbygovernmententitiesandcorporationstoraisemoney.Everybond comewithafacevalue,whichissometimescalledaparvalue.Thisnumberindicateswhatthebondwillbeworthatmaturity,andit’salsousedtocalculatethebond’sinterestpayments.It’soneofthekeynumbersyouneedtoknowaboutabondinordertounderstanditsvalueasaninvestment.Ifyouhavespecificquestionsaboutinvestinginbonds,considerconsultingwithafinancialadvisor.WhatIstheFaceValueofaBond?Abond’sfacevaluereferstohowmuch abondwillbeworthonitsmaturitydate.Inotherwords,it’sthevaluethatthebondholderwillreceivewhentheirinvestmentfullymatures(assumingthattheissuerdoesn’tcallthebondordefault).Mostbondsareissuedin$1,000denominations,sotypicallythefacevalueofabondwillbejustthat–$1,000.Youmightalsoseebondswithfacevaluesof$100,$5,000and$10,000.Thepriceyoupayforabondmaybedifferentfromitsfacevalue,andwillchangeoverthelifeofthebond,dependingonfactorslikethebond’stimetomaturityandtheinterestrateenvironment.Butthefacevaluedoesnotchange.Ifitwas$1,000atissue,thenthat’sexactlywhattheholderofthebondwillreceivewhenitmaturesattheendofitsterm.TheBasicsofBondsInsimpleterms,abondisaloanbetweenaninvestorandanissuer.Theyareacommoninvestmentsecurityissuedbygovernmentorganizationsorbusinessesinanefforttodrivecapitalforanupcomingprojectorinitiative.Bondshaveasetterm;usually,abond’stermrangesfromoneto30years.Withinthistimeframe,thereareshort-termbonds(1-3years),medium-termbonds(4-10years)andlong-termbonds(10yearsormore).Theendofthistermisknownasthematuritydate.Atthispoint,thefullfacevalueofthebondispaidtoinvestors.However,thefacevalueisnottheonlyreturnabondholderwillreceive.You’llalsoreceiveinterestpayments,whicharelikewiseestablishedattheoutset.Abond’s couponrate istherateatwhichitearnsthesereturns,andpaymentsarebasedonthefacevalue. Soifabondholdsa$1,000facevaluewitha5%couponrate,thenthatwouldleaveyouwith$50inreturnsannually.Thisisinadditiontotheissuerpayingyoubackthebond’sfacevalueonitsmaturitydate.Bondsaregenerallyconsideredsaferinvestmentsthanequityinvestments(stocks).Butaswithanyinvestment,nothingisasurebet.Bondinvestorsneedtoworryaboutdefaultrisk–thattheissuinggovernmentorcorporationwillgobankruptanddefaultonitsloanobligations.Theyalsoneedtoworryaboutinterestraterisk–thatachangeinprevailinginterestrateswilllowerthevalueofyourbond.Alsochecktoseeifyourbondpaperworkincludeslanguageonwhetherornotit’s“callable.”Inthissituation,holdersofacalledbondwillreceiverepaymentearlierthananticipatedbeforethematuritydate.Ifyou’dratheravoidinvestinginindividualbonds,therearemanymutualfundsand exchange-tradedfunds thatfocusonfixed-incomeinvestments.FaceValuevs.MarketValueAbond’sfacevaluediffersfromitsmarketvalue.Facevalueistheamountofmoneypromisedtothebondholderuponthebond’smaturity.Bycontrast,abond’smarketvalueishowmuchsomeonewillpayforthebondonthefreemarket.Facevalueispredeterminedwhenthebondissold;marketvaluetakesintoaccountmultipleoutsidefactors.Theseincludethecurrentinterestrateenvironmentandthetimetomaturity(whichinturnhelpsdeterminethevalueofallfutureinterestpayments).Themarketpriceofabondcanalsobeaffectedbythefinancialhealthofitsissuer.Therefore,iftheissuingcompanyorgovernmententityisn’tdoingwellfinancially,thebond’spricemightbedrivendownbecauseoftheriskofdefault.BottomLineThefacevalueofabondisthestartingpointforgaugingwhetherornotit’sagoodinvestmentforyou.Combinedwithotherfactorslikethecouponrateandtimetomaturity,aninvestorcandeterminehowmuchmoneyabondwillultimatelygenerateanditsvaluerelativetootherbondsonthemarket.Asidefromknowingyourbond’sfacevalue,besureyou’rewell-versedinitscoupondates.Thesearetheall-importantdayswhenyou’llreceiveinterestpayments.Whilefrequencycanvaryfrombondtobond,they’reusuallyannualorsemi-annual. Therearealsozero-couponbonds,whichmeansthatthebondissuerpaysnointerestonthebond’sfacevalue.UsingaFinancialAdvisortoHelpYouInvestBondswillplayanimportantroleinyourportfolioasyougetclosertoretirement,soit’sessentialtoworkwithafinancialadvisorwhocanhelpyounavigatetheworldoffixed-incomeinvesting.Findingtherightadvisorthatfitsyourneedsdoesn’thavetobehard.SmartAsset’sfreetoolmatchesyouwithfinancialadvisorsinyourareain5minutes.Ifyou’rereadytobematchedwithlocaladvisorsthatwillhelpyouachieveyourfinancialgoals,getstartednow.Oneofthemainbenefitsofusinga financialadvisor isthattheycanhelpyoubuildadiversifiedportfolio.Thisistypicallydonethroughthecreationofanassetallocation,whichaccountsforyourrisktoleranceandtimehorizontoallocateyourportfoliotostocks,bondsandotherassetclasses.Evenifinvestingisthemainreasonyouwantafinancialadvisor,itmightbeworthtakingadvantageoftheirfinancialplanningofferings.Whilenotallfirmshavetheseservices,mostdo,andtheycanhelpyougobeyondinvestmentmanagementtotakeamoreholisticviewofyourfinancialsituation.Photocredit:©iStock.com/PashaIgnatov,©iStock.com/monsitj,©iStock.com/RichVintageRachelCauteroRachelCauterowritesonallthingspersonalfinance,fromretirementsavingstipstomonetarypolicy,evenhowyoungfamiliescanbestmanagethefinancialchallengesofhavingchildren.HerworkhasappearedinTheAtlantic,Forbes,TheBalance,LearnVest,SmartAsset,HerMoney,DailyWorth,TheNewYorkObserver,MarketWatch,Lifewire,TheLocal:EastVillage,aNewYorkTimespublicationandTheNewYorkDailyNews.RachelwasanExperian#CreditChatpanelistandhasappearedonCheddarLifeandNPR’sOnPointRadiowithMeghnaChakrabarti.Shehasabachelor’sdegreefromWittenbergUniversityandamaster'sinjournalismfromNewYorkUniversity.Hercoworkersincludeherone-year-oldsonandaveryneedyFrenchbulldog.Wasthiscontenthelpful?YesNoSubmitThanksforyourinput!CloseShareTweetRelatedPosts7MistakesEveryoneMakesWhenHiringaFinancialAdvisor20QuestionstoTellIfYou'reReadytoRetireTheWorstWaytoWithdrawFromYourRetirementAccountsReadnextarticleAboutOurInvestingExpertHaveaquestion?AskourInvestingexpert.BarbaraFriedbergAnauthor,teacher&investingexpertwithnearlytwodecadesexperienceasaninvestmentportfoliomanagerandchieffinancialofficerforarealestateholdingcompany.MoreFromSmartAssetCompareUpto3FinancialAdvisorsNearYouMortgageCalculatorHowMuchDoINeedtoSaveforRetirement?CalculateYourCapitalGainsTaxShouldIRefinanceMyMortgage?CompareMortgageRatesSubscribetoourNewsletterJoin200,000+othersubscribersCategoriesAdvisorResourcesAutoCareerCheckingAccountCreditCardsCreditScoreDataStudiesDebtEstatePlanningFinancialAdvisorInsightsInsuranceInvestingLifeInsuranceMortgagePersonalFinancePersonalLoansRefinanceRetirementSmallBusinessStudentLoansTaxesOKCancelAnerroroccurredPleasereloadthepage.