Par value
Also known as: face value
Par value is the face amount a repays to its holder at maturity, and the base figure used to calculate the 's .
The formula is:
x Par value = Annual A issued at a par value of one thousand dollars with a five percent pays fifty dollars a year in interest and returns the full one thousand dollars when it matures, regardless of what the 's market price did in between.
A 's market price and its par value are often different from one moment to the next, since price moves with interest rates and credit conditions while par value stays fixed for the life of the . A trading above its par value is said to trade at a premium, and one trading below par value is said to trade at a discount. Either way, the still repays exactly its par value at maturity, so buying at a discount effectively locks in a by maturity, while buying at a premium effectively locks in a capital loss by maturity, both of which factor into a 's .
Par value should not be confused with a 's original issue price, most are in fact issued at or very close to par, or with the price an investor might pay for it in the secondary market. It is simply the fixed reference amount written into the , used throughout the 's life for calculating interest and determining what gets repaid at the end.