Question

Your friend Jon is starting a new photography business that specializes in photographs of Central Park in New York City. Because his business is new and risky, he is unable to obtain a loan from the local bank. On June 21, 2017, you agree to pay a price of $4,000 for a bond from Jon. You will receive $5,000 in return on June 21, 2018. The face value of the bond mentioned in the scenario is equal to

Answer 1

The face value is $4,000.

Step-by-step explanation:

The face value of a bond is also called its spar value. It is the price of the bond when it is issued first. The price of a bond changes with changes in the interest rates but the face value remains constant.

Here, the price of the bond when it was issued for the first time is $4,000. so its face value is $4,000. The price at maturity is $5,000. The bond is being discounted at a premium or above par value.