A par value bond refers to a type of bond that is issued with a predetermined face value, which is known as its par value or nominal value. It is the amount at which the bond is initially sold to investors, and it is also the amount that will be repaid to the bondholder upon its maturity.
The par value is usually set at $1,000 for corporate bonds and $100 for municipal bonds. When a par value bond is issued, the coupon rate is determined based on this par value, and the bondholder receives regular interest payments, typically semi-annually, based on this rate.
The term "par" is derived from the Latin word "par," meaning equal, indicating that the par value represents an equal value exchange between the issuer and the bondholder. However, it is important to note that the market value or price of a par value bond can fluctuate during its lifetime, depending on various factors such as changes in interest rates, creditworthiness of the issuer, and market demand for the bond.
Par value bonds are typically seen as a conservative investment option, providing investors with a fixed income stream and an assurance that their initial investment will be repaid upon maturity. They are commonly used by corporations and governments to raise funds for various purposes, such as expansion projects or infrastructure development.
In summary, a par value bond is a debt instrument with a predetermined face value at the time of issuance, serving as the basis for interest payments and ultimate repayment to the bondholder.
