What does par value represent in a bond?

What does par value represent in a bond?

• A. The total return if held to maturity.
• B. The amount repaid at maturity.
• C. The bond's current market price.
• D. The coupon rate.

Answer: (B)

Par value is the amount the bond issuer promises to repay to the holder at maturity. It’s the fixed face value used to calculate the periodic coupon payments (coupon payments are typically a percentage of this par value) and the amount you’ll receive when the bond matures, assuming no default. The market price you pay for the bond can be above or below this par value, depending on current interest rates, but the amount repaid at the end is the par value. Hence, par value represents the amount repaid at maturity.

Par value is the amount the bond issuer promises to repay to the holder at maturity. It’s the fixed face value used to calculate the periodic coupon payments (coupon payments are typically a percentage of this par value) and the amount you’ll receive when the bond matures, assuming no default. The market price you pay for the bond can be above or below this par value, depending on current interest rates, but the amount repaid at the end is the par value. Hence, par value represents the amount repaid at maturity.