Face Value

What Is Face Value?

Face value is the stated value printed on a financial instrument. For a bond, it is usually the amount the issuer agrees to repay the holder when the bond reaches its maturity date. Face value is also called par value or nominal value. It is a fixed contractual figure, and it does not necessarily match the price at which the security trades in the market.

How Face Value Works in Bonds

Face value is the base used to calculate interest. A bond's coupon rate is applied to its face value to determine the annual interest payment. For example, a bond with a face value of $1,000 and a 5% coupon pays $50 per year.

Annual interest payment = Face value × Coupon rate

Because the market price of a bond changes with interest rates and the issuer's creditworthiness, a bond may trade above its face value (at a premium) or below it (at a discount). The face value itself stays the same, so the coupon payments remain tied to it.

Face Value for Stocks and Other Instruments

For common stock, the face value is usually called par value. It is often a very small amount set in the company's charter, and it has little practical meaning for investors because the market sets the stock's price. In insurance, the face amount of a policy is the sum payable at death or at maturity. On paper currency, face value is the denomination printed on the note.

Why It Matters to Investors

Face value shows the cash flows a bond promises, but it is not the same as what the security is worth today. Comparing face value to market price shows whether a bond is trading above or below its promised repayment, which is one step in understanding its yield to maturity. It is also worth noting that a bond's price can fall well below face value if the issuer's credit weakens. An investor who sells before maturity may therefore receive less than the face value.