A bond is a type of investment in which an investor loans money to the entity (issuer). The borrowed amount has to be paid back to the investor of the bond at some point of time in the future by the issuer
The face value is the amount of money the investor will receive in the future.
Simply, the face value is the value printed on the bond certificate for the first time while issuing.
To put it in another way, the face value is also called a nominal value or par value.
Nominal value or par value is the value stated by the issuer of the bond and stocks which will be repaid at the maturity date.
Face value is different from the market value of a stock or a bond
Face Value | Market Value |
Face value is the value the issuer decides to pay to the investor while issuing the security | Market value is the current value or the prevailing value of the security |
It is fixed until the issuer makes any changes | It is fluctuating in nature |
For example, XYZ company decides to issue security which has Rs. 10 per security, and that turns out to be the face value of that security. | For example, the value of the security of company XYZ is trading at Rs. 100 per security then that turns out to be the market value. |
The face value is calculated by dividing the net worth or the difference between the assets and liabilities by the number of issued shares.
Assigning face value is very vital from the company point of view as it helps the company to calculate the accounting value of its shares.
Accounting value is the book value that is represented on the balance sheet of the company financial statement.
Book Value (Share capital + Retained earnings) = Total assets (Current assets + Fixed assets) - Total liabilities (Current liabilities + Non current liabilities)
The face value of the bond is the starting point to gauge the investment value. Considering the other factors like the interest rate of the bond, time period of the bond an investor determines the return a bond generates in comparison to other prevailing bonds in the market.
Bondskart has a team of experts who can help you at every step to ensure you get every single detail in the process of investment.