What does the face value of a bond signify?

The face value of a bond signifies the amount that will be repaid to the bondholder at maturity. This value is predetermined at the time the bond is issued and acts as a reference point for both the issuer and the investor. When a bond reaches its maturity date, the issuer is obligated to pay the bondholder this face value, regardless of the bond’s market performance in the interim.

Understanding the face value is crucial because it reflects the initial capital invested by the bondholder and serves as a basis for calculating interest payments, which are typically paid as a percentage of the face value. The total income generated by a bond, as mentioned in the first choice, relates to the sum of its interest payments over time rather than the principal repayment. The interest rate set by the market pertains to the yield or the interest payments made relative to the current market conditions, while the value of the bond in the secondary market can fluctuate based on supply and demand, interest rates, and other factors, but does not influence the face value, which remains constant throughout the bond’s life.