Face value is the monetary value of a security, such as a bond or stock, that is printed on the certificate. It is also known as par value or nominal value. Face value is important because it is the amount that the issuer of the security promises to pay the holder at maturity.
Importance
Face value is important because it is the amount that the issuer of the security promises to pay the holder at maturity. It is also used to calculate the coupon rate, which is the interest rate paid on the security. The coupon rate is calculated by dividing the face value by the coupon amount. For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the coupon amount would be $50.
Example
For example, if a bond has a face value of $1,000 and a coupon rate of 5%, the coupon amount would be $50. The bondholder would receive $50 in interest payments each year until the bond matures. At maturity, the bondholder would receive the face value of $1,000.
Table
Face Value Coupon Rate Coupon Amount $1,000 5% $50
Key Takeaways
- Face value is the monetary value of a security, such as a bond or stock, that is printed on the certificate.
- Face value is important because it is the amount that the issuer of the security promises to pay the holder at maturity.
- Face value is used to calculate the coupon rate, which is the interest rate paid on the security.
- The coupon rate is calculated by dividing the face value by the coupon amount.
Conclusion
Face value is an important concept in the world of finance. It is the amount that the issuer of the security promises to pay the holder at maturity. It is also used to calculate the coupon rate, which is the interest rate paid on the security. Knowing the face value of a security is essential for investors to understand the potential return on their investment.
