Face value (par value, principal)
What is face value (par value or principal)?
Face value, also called par value or principal, are all investment terms used to describe the nominal value of a security.
For bonds this is the amount that the bond holder will receive when the bond matures. For stocks, this is the value per share from the issuer.
Where have you heard about face value?
Taking something at face value is a widely used idiom meaning to accept something as it appears. This is the same when talking about bonds – at face value the bond might be worth $1,200, but this price may increase or decrease according to interest rates and the issuer’s market position.
What you need to know about face value.
The face value is typically $1,000 for a corporate bond in the US, $5,000 for a municipal bond and $10,000 for a government bond.
This is used to indicate when a bond is selling at a discount (below face value), or at a premium (above face value), so investors can reduce risks when buying or selling.
Face value is important when making bond calculations, such as interest payments, market values, discounts and premiums.
Although the price of a bond is influenced by its face value, this is not necessarily the same as the bond’s market value.