Final answer:
The principal of a bond is the face amount that will be repaid to the bondholder at maturity. It is distinct from the bond's coupon rate, which is the interest rate paid on the principal throughout the bond's life. Market factors influence a bond's present value, which may differ from its face value.
Step-by-step explanation:
The principal of a bond is D. the face amount of the bond that will be paid back at maturity.
In financial terms, the principal is the core amount of money that the issuer of the bond agrees to repay the bondholder at the end of the bond's term, also known as its maturity date. It is essentially the loan amount that a company borrows from investors when it issues the bond. In contrast to the principal, the bond's coupon rate or interest rate specifies the periodic payments that the issuer will make to the bondholder until maturity.
Both the fixed interest payments and the principal repayment at maturity compose the bondholder’s returns. Market interest rates can influence the present value of a bond, which is what a buyer is willing to pay for it. The present value can differ from the bond's face value based on prevailing interest rates and the bond's perceived risk.