Par Value
Par Value
The face value of a bond, typically $1,000 for corporate and municipal bonds, representing the amount the issuer agrees to repay the bondholder at maturity. Par value serves as the basis for calculating coupon payments (e.g., a 5% coupon on $1,000 par = $50 annual interest). Bonds trade at premium (above par), discount (below par), or par in the secondary market based on interest rate movements and credit quality.
An investor purchases a newly issued corporate bond with $1,000 par value and 6% coupon rate. She receives $60 annually ($30 semi-annually) regardless of market price fluctuations. If interest rates rise and the bond trades at $950 (below par), she still receives $60/year and gets $1,000 back at maturity. If she sells before maturity at $950, she realizes a $50 capital loss, but if held to maturity, she receives full $1,000 par value.
Students often confuse par value with market price (par is fixed, market price fluctuates), assume par value applies to stocks the same way as bonds (stock par value is nominal and unrelated to market price), or forget that bonds always mature at par value regardless of purchase price.
How This Is Tested
- Calculating annual or semi-annual coupon payments using par value and coupon rate
- Determining whether a bond trades at premium, discount, or par based on market price vs. par value
- Understanding that maturity value equals par value regardless of purchase price
- Identifying par value as the basis for computing current yield and yield-to-maturity
- Distinguishing between bond par value ($1,000) and stock par value (nominal/arbitrary)
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| Standard par value for corporate bonds | $1,000 | Industry convention; bonds quoted as percentage of par (e.g., 98 = $980) |
| Standard par value for municipal bonds | $1,000 | Standard denomination for exam purposes (though $5,000 denominations exist in practice) |
Example Exam Questions
Test your understanding with these practice questions. Select an answer to see the explanation.
Jennifer purchased a 10-year corporate bond at issuance with $1,000 par value and a 4% coupon rate. Three years later, interest rates have increased significantly, and her bond now trades at $920 in the secondary market. She is considering selling but is confused about what she will receive. If Jennifer holds the bond to maturity instead of selling, what amount will she receive at maturity (excluding final coupon payment)?
C is correct. At maturity, bondholders always receive the bond's par value (face value), which is $1,000, regardless of what they paid for it or current market price. The par value is the contractual amount the issuer promises to repay. Jennifer will receive $1,000 at maturity plus her final $20 coupon payment.
A ($920) represents the current market price, which is what she would receive if she sells now, not at maturity. B ($960) is not a relevant value in this scenario. D ($1,040) incorrectly adds the annual coupon to par; the question specifically excludes the final coupon payment, and the maturity value is always par ($1,000), not par plus interest. Understanding that bonds mature at par value is fundamental to fixed-income investing.
The Series 65 exam tests understanding that par value is the fixed maturity value, distinct from fluctuating market prices. This concept is critical for explaining bond returns to clients and understanding yield-to-maturity calculations, which assume the bond is held until it matures at par.
What is the standard par value for most corporate bonds in the United States?
C is correct. The standard par value (face value) for corporate bonds is $1,000. This is the industry convention and represents the amount the issuer will repay at maturity. Bond prices are quoted as a percentage of par value (e.g., a quote of 95 means 95% of $1,000 = $950).
A ($100) is too low and not the standard denomination. B ($500) is not the conventional par value for corporate bonds. D ($5,000) is more common for municipal bonds, though some corporate bonds may have $5,000 par, the standard is $1,000. Understanding par value is essential because it serves as the basis for coupon payment calculations and maturity value.
The Series 65 exam frequently tests knowledge of standard bond conventions. Knowing that corporate bonds have $1,000 par value is essential for calculating interest payments, understanding bond quotes, and determining total investment amounts when clients purchase multiple bonds.
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A is correct. Calculate: Each bond pays 7.5% annually on $1,000 par = $75 per year per bond. Semi-annual payment = $75 ÷ 2 = $37.50 per bond. For 5 bonds: $37.50 × 5 = $187.50 every six months.
B ($375.00) is the total annual interest for all 5 bonds (5 × $75), not the semi-annual payment. C ($750.00) incorrectly multiplies by 10 instead of using the correct calculation. D ($5,000.00) represents the total par value of all bonds, not the interest payment. Remember: coupon payments are always calculated based on par value and coupon rate, regardless of market price.
Coupon payment calculations appear frequently on the Series 65 exam. Understanding that par value is the basis for interest calculations, and that semi-annual payments equal half the annual coupon, is essential for advising clients on fixed-income cash flows and comparing bond investments.
All of the following statements about par value are accurate EXCEPT
C is correct (the EXCEPT answer). Par value does NOT change when market interest rates change. Par value is FIXED at issuance and remains constant throughout the bond's life. When interest rates change, the bond's MARKET PRICE adjusts (up when rates fall, down when rates rise), but par value stays the same.
A is accurate: coupon payments are calculated as a percentage of par value (e.g., 5% coupon on $1,000 par = $50 annually). B is accurate: market prices fluctuate based on interest rate movements and credit quality, causing bonds to trade at premium (above par), discount (below par), or par. D is accurate: at maturity, the issuer repays the par value ($1,000) regardless of whether the investor paid $900, $1,000, or $1,100.
The Series 65 exam tests your understanding of the distinction between fixed par value and fluctuating market price. This is critical for explaining to clients why their bond's value changes before maturity but why they'll still receive full par value if held to maturity, providing capital gain or loss depending on purchase price.
A municipal bond has $5,000 par value, a 4% coupon rate, and currently trades at 92 (92% of par). Which of the following statements are accurate?
1. The investor receives $200 annual interest regardless of market price
2. The current market price is $4,600
3. If held to maturity, the investor receives $5,000
4. The bond trades at a premium to par value
B is correct. Statements 1, 2, and 3 are accurate.
Statement 1 is TRUE: Annual coupon = $5,000 par × 4% = $200. Coupon payments are based on par value and coupon rate, not market price, so the investor receives $200 annually regardless of the bond trading at 92.
Statement 2 is TRUE: Bond prices are quoted as percentage of par. 92 means 92% of $5,000 = $4,600. The bond trades at a discount (below par).
Statement 3 is TRUE: At maturity, bonds always return par value to the holder. The investor receives $5,000 at maturity, regardless of paying $4,600.
Statement 4 is FALSE: The bond trades at a DISCOUNT to par, not a premium. A quote of 92 (92% of par) means the price is below par value. Premium means trading above 100 (above par).
The Series 65 exam tests comprehensive understanding of how par value relates to coupon payments, market pricing, and maturity value. Understanding that par value is the anchor for all these calculations is essential for bond analysis, client communication, and comparing bond investments across different price points.
💡 Memory Aid
Think of par value as the "IOU Promise" amount: No matter what price you paid for the bond (discount or premium), the issuer always pays you back the par value at maturity ($1,000 for corporate bonds). Par = Permanent & Principal – it never changes, and it's the principal repaid. Use par to calculate interest (coupon rate × par), but remember market price fluctuates while par stays fixed.
Related Concepts
This term is part of this cluster:
More in Bond Mechanics
Where This Appears on the Exam
This term is tested in the following Series 65 exam topics: