TransWikia.com

Bonds: Is "principal" a synonym of "face value"?

Personal Finance & Money Asked on December 16, 2020

Consider a bond that has a face value (or par value, or nominal value) of $1000. Suppose I buy this bond at a price of $950. Is this $950 the principal, or is the principal $1000? From my perspective, the $950 is the amount I invested, so I look at it as the principal. However, online articles seem to treat "principal" and "face value" as synonyms. If this is the case, what is the proper term to describe the $950 I invested?

(I am currently learning more about bonds. This question is for clearing up my confusion about bond terminology)

2 Answers

$950 would be the Price of the Bond that you got it at a discount.
$1000 would be the Principal / Face value ... that would be used to calculate the interest.

Answered by Viv on December 16, 2020

The principal for a vanilla coupon-paying bond is $1,000 regardless of how much you paid for it. There are some bonds that will have a lower principal value at the beginning and accrue principal rather than making coupon payments, but I don't think that's what you're describing.

If this is the case, what is the proper term to describe the $950 I invested?

I would call that your cost basis in the bond. Or perhaps the present value at the time you bought the bond.

Answered by D Stanley on December 16, 2020

Add your own answers!

Ask a Question

Get help from others!

© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP