The term “face value” is applied to the value of a given type of security, which is specifically given by the issuer of that security. For example, in the case of stocks, the face value is the initial cost of the stock that is stated directly on the stock certificate. In the case of bonds, however, the face value refers to the amount that is to be paid out to the bond holder when it reaches maturity (generally this amount is $1,000). Face value is also referred to as the “par value” of a security, (or else simply called “par”).
With bond investing, the face value payment expected by the holder of the bond (when it reaches the maturity date) will be dependent on the issuer not defaulting. In addition, there are bonds that can be sold on a secondary market. These types of bonds will fluctuate up and down in accordance with the prevailing interest rates.
This means that if the interest rates move up higher than the bond’s set coupon rate, then the bond ends up being sold at a discount (which is also known as “below par”). On the other hand, if the interest rates dip down lower than the bond’s coupon rate, then the bond will be sold at a premium (this sale is also known as “above par”). With bonds, all interest payments are calculated and noted as a percentage of the stated face value.