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A bond is a type of a debt security, the approved issuer owes the holders a debt. The repayment period is often an agreement between the issuer and the holder.
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What is the amount paid to purchase a bond that will be repaid at maturity?
Par Value
When is a bond and par value generally repaid?
A bond's par value, also known as its face value, is generally repaid at maturity, which is the predetermined date specified in the bond agreement. At this time, the issuer pays the bondholder the full par value, along with any final interest payments. Maturity periods can vary, typically ranging from a few months to several decades, depending on the bond's terms.
What is the term the face value of bonds must be repaid on the date?
The term you are referring to is "maturity." At maturity, the issuer of the bond is obligated to repay the face value, also known as the par value, to the bondholder. This is the amount that investors initially pay for the bond and is distinct from its market value, which can fluctuate over time.
What are the three main characteristics of bonds?
The three main characteristics of bonds are their face value (par value), coupon rate (interest rate), and maturity date (when the bond will be repaid). Bond prices fluctuate based on market interest rates, with higher rates leading to lower bond prices and vice versa. Bonds can be issued by governments, municipalities, or corporations to raise funds.
What are bonds sold at face value?
Bonds sold at face value, or par value, are issued at their nominal value, which is the amount the issuer agrees to pay the bondholder at maturity. For example, if a bond has a face value of $1,000, it will be sold for $1,000 when issued. Investors typically receive interest payments based on this face value until maturity, when they are repaid the full amount. Selling at face value indicates that the bond is not being sold at a premium or discount relative to its value.
What is a bond selling at face value called?
A bond selling at face value is referred to as a "par bond." This means the bond is being sold for its nominal or par value, which is the amount that will be repaid to the bondholder at maturity. When a bond is at par, its market price equals its face value, indicating that the interest rate, or coupon rate, is in line with current market rates.
What is the difference between the bond's principal and the bond's par value?
The bond's principal refers to the initial amount borrowed by the issuer and repaid at maturity, while the bond's par value is the face value of the bond that is used to calculate interest payments. In most cases, the principal and par value are the same, but they can differ if the bond is issued at a discount or a premium.
What is a discount on bonds payable account in accounting?
All bonds have a stated or "par" value, which is the value that the bond will hold after the bond term is completed at maturity (par value is usually $1000 per bond). When a bond is issued at a discount, it means that a company issued the bond for less than the par value (i.e less than $1000). The original discount is calculated as the difference between the par value and the bond sale price, and it is amortized over the life of the bond.
What does it mean when bonds are issued at premium?
The bond price exceeds the par price when issued at a premium and declines to the par value as it gets closer to maturity.
What is the principal amount of a bond that is repaid at the end of the term called?
The principal amount of a bond that is repaid at the end of the term is called the "face value" or "par value." This is the amount that the bond issuer agrees to pay the bondholder upon maturity. It is also the basis for calculating interest payments, which are typically expressed as a percentage of the face value.
Is cash is valued at par value?
Par value is the standard price of securities such as Stock and Bonds; it has nothing to do with cash valuation. Cash is stated on the financial statements at Nominal Value (i.e., current dollars unadjusted for inflation).
What type of set increments are bonds usually sold in?
Bonds are typically sold in increments of $1,000, known as the par value or face value of the bond. Investors can purchase bonds in multiples of $1,000 to suit their investment needs.
