Bond Face Value – What it is and How it WorksOctober 17th, 2012 by David Waring
Face Value is the amount that you will be paid when the bond matures, assuming that the bond does not default. It is called face value because back when paper bond certificates were issued, it was the amount printed on the “face” meaning front of the bond certificate. If you buy a bond when it is originally issued, you normally pay the face value for the bond as well, however there are a few exceptions like zero coupon bonds. Face value is $1000 for most bonds, with the exception of T-Bills and Savings Bonds.
The face value of a bond matters not only because its how much you receive when the bond matures, but also because its how your coupon interest payment is calculated. If a bond has a face value of $1000 and a coupon interest rate of 6%, then you receive $60 per year from the bond.
After a bond is issued, its value fluctuates along with interest rates and other factors. This means that while the amount you receive back at maturity (face value) does not change, the price of a bond before maturity can be higher or lower than the bond’s face value. Another word for face value is par value.
For more definitions and explanations please visit the Learn Bonds glossary where we give the meaning of many additional bond terms.