What is the par value of a bond?

The par value of a bond refers to the face value that is repaid to the bondholder at maturity. This is the amount that the issuer agrees to pay back to the bondholder when the bond reaches its maturity date. It's important to note that par value does not fluctuate with market conditions; rather, it remains constant throughout the life of the bond.

Understanding par value is critical because it directly influences the bond's interest payments, which are typically calculated as a percentage of the par value. For instance, if a bond with a par value of $1,000 has a coupon rate of 5%, the bondholder will receive $50 annually until maturity. This fixed repayment structure is fundamental to how bonds operate in municipal finance and helps investors assess the potential return on their investment.

While the current market value of a bond can fluctuate based on interest rates, demand, and other factors, it is different from par value. Adjustments for inflation and estimates of future value pertain to different financial concepts that do not define the par value. Therefore, the definition of par value as the face value repaid at maturity is essential for understanding bond investments and municipal finance.