face value

(noun)

The amount or value listed on a bill, note, stamp, etc.; the stated value or amount.

Related Terms

Examples of face value in the following topics:

  • Bonds Issued at Par Value

    • To record a bond issued at par value, credit the "bond payable" liability account for the total face value of the bonds and debit cash for the same amount.
    • Consider a 3-year bond with a face value of $1,000 and an effective interest rate of 7%, sold at face value.
    • Since the bond is sold at face value, the proceeds are $1,000.
    • When a bond is issued at par value it is sold for the face value amount.
    • Since the bonds are sold at par value, the amount of cash the company receives should equal the total face value of the issued bonds.

  • Par Value at Maturity

    • Par value is stated value or face value, with a typical bond making a repayment of par value at maturity.
    • Par value, in finance and accounting, means the stated value or face value.
    • Corporate bonds usually have par values of $1,000 while municipal bonds generally have face values of $500.
    • Federal government bonds tend to have much higher face values at $10,000.
    • F = face value, iF = contractual interest rate, C = F * iF = coupon payment (periodic interest payment), N = number of payments, i = market interest rate, or required yield, or observed/ appropriate yield to maturity, M = value at maturity, usually equals face value, P = market price of bond.

  • Impact of Payment Frequency on Bond Prices

    • Bond prices is the present value of all coupon payments and the face value paid at maturity.
    • F = face value, iF = contractual interest rate, C = F * iF = coupon payment (periodic interest payment), N = number of payments, i = market interest rate, or required yield, or observed / appropriate yield to maturity, M = value at maturity, usually equals face value, P = market price of bond.
    • In other words, bond price is the sum of the present value of face value paid back at maturity and the present value of an annuity of coupon payments.
    • For bonds of different payment frequencies, the present value of face value received at maturity is the same.
    • Bond price is the present value of all coupon payments and the face value paid at maturity.

  • Chapter Questions

    • A T-bill has a face value of $20,000 with a yield to maturity of 3%, and this bill matures in 270 days.
    • Calculate the market value of this T-bill.
    • A bond has a face value of $2,000, an interest rate of 10%,and pays interest twice a year.
    • A bond has a face value of $2,000, an interest rate of 10% and pays interest twice a year.
    • If the bond matures in 3 years with a face value of $5,000, calculate your yield-to-maturity (YTM).

  • Bond Valuation Method

    • A bond's value is measured by its sale price, but a business can estimate a bond's price before issuance by calculating its present value.
    • Whether the amount the business will receive equals its face value depends on the difference between the bond's contract rate and the market rate of interest at the time the bond is issued .
    • Regardless of what the contract and market rates are, the business must always report a bond payable liability equal to the face value of the bonds issued.
    • If the market rate is greater than the coupon rate, the bonds will probably be sold for an amount less than the bonds' face value and the business will have to report a "bond discount. " The value of the bond discount will be the difference between what the bonds' face value and what the business received when it sold the bonds.
    • The business will then need to record a "bond premium" for the difference between the amount of cash the business received and the bonds' face value.

  • Par Value

    • Par value/face value (also known as the principal) is the amount of money a holder will get back once a bond matures.
    • Par value means stated value or face value in finance and accounting.
    • When a bond trades at a price above the face value, it is said to be selling at a premium.
    • When a bond sells below face value, it is said to be selling at a discount.
    • At maturity, the price of a debt instrument in good standing should equal its par (or face value).

  • Factors Affecting the Price of a Bond

    • A bond's book value is affected by its term, face value, coupon rate, and discount rate.
    • Note that the trading value of a bond (its market price) can vary from its face value depending on differences between the coupon and market interest rates.
    • A bond's coupon is the interest rate that the business must pay on the bond's face value.
    • A bond's value is measured based on the present value of the future interest payments the bond holder will receive.
    • Explain how a bond's value is affected by its term, face value, coupon and discount rate

  • Present Value of Payments

    • F = face value, iF = contractual interest rate, C = F * iF = coupon payment (periodic interest payment), N = number of payments, i = market interest rate, or required yield, or observed / appropriate yield to maturity, M = value at maturity, usually equals face value, and P = market price of bond.
    • The bond price can be summarized as the sum of the present value of the par value repaid at maturity and the present value of coupon payments.
    • The present value of coupon payments is the present value of an annuity of coupon payments.
    • The present value is calculated by:
    • Bond price is the present value of coupon payments and face value paid at maturity.

  • Valuing Zero-Coupon Bonds

    • The value of a zero-coupon bond equals the present value of its face value discounted by the bond's contract rate.
    • Instead, the entity will sell the bond at lower than face value.
    • When the bond's term is over, the issuing business will repay the bond at its face value.
    • Zero-Coupon Bond Value = Face Value of Bond / (1+ interest Rate)
    • The amount the company pays at the end of the term equals the bond's face value.

  • Are Real Dice Fair?

    • A fair die has an equal probability of landing face-up on each number.
    • When thrown or rolled, the die comes to rest showing on its upper surface a random integer from one to six, each value being equally likely.
    • The other four Platonic solids are the most common non-cubical dice; these can make for 4, 8, 12, and 20 faces .
    • There are several methods for creating loaded dice; these include round and off-square faces and (if not transparent) weights.
    • A Platonic solids set of five dice; tetrahedron (four faces), cube/hexahedron (six faces), octahedron (eight faces), dodecahedron (twelve faces), and icosahedron (twenty faces).