Question

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?

1) coupon
2) face value
3) discount
4) yield
5) dirty price

Answer 1

The $1,000 that Bert will receive at the maturity of the bond is known as the bond's face value, representing the principal amount that the issuer has promised to repay.

Step-by-step explanation:

The $1,000 payment Bert will receive at the maturity of the bond is known as the bond's face value. This face value is the amount the issuer of the bond promises to pay the bondholder upon the bond's maturity, in addition to any interest payments made during the life of the bond.

It is essentially the principal amount invested in the bond, and it is distinct from other bond-related terms such as coupon (which refers to the interest payments), discount (when a bond is sold below its face value), yield (the rate of return on the bond), or dirty price (which includes accrued interest).