Final answer:
The face amount of a promissory note is called the principal. This is the amount owed before interest or fees and is returned to the investor at maturity. It's integral in financial contracts and determines interest and repayment schedules.
Step-by-step explanation:
The face amount of a promissory note is known as the principal of the note. This is the initial amount of money that the borrower agrees to repay the lender, and does not include interest or additional fees. The principal is a key part of any financial contract because it determines the basis for interest calculations and repayment schedules.
When considering a bond, the face value is the amount that is promised to be paid to the bondholder at maturity. Additionally, the bond also includes a coupon rate, or interest rate, which specifies the percentage of the face value that will be paid periodically as interest. The actual market value of the bond, or present value, can differ from the face value, depending on current market interest rates.
Let's use a simple example of a bond with a face amount of $3,000 and an interest rate of 8%. If this bond pays semi-annual interest, then the bondholder would receive $240 every year until maturity. The face amount of this bond, which is $3,000, would be paid back along with the last interest payment at the end of its term.