Par Amount
What Is Par Amount?
Par amount refers to the face value of a bond or other fixed-income security. It represents the amount the issuer promises to repay the investor when the bond reaches maturity.
For most bonds issued in the United States, the standard par amount is $1,000 per bond, though institutional bonds may have different denominations.
Why It Matters
The par amount determines the amount investors receive at maturity and serves as the basis for calculating interest payments on many bonds. Coupon rates are typically applied to the bond’s par amount rather than its market price.
Understanding par amount helps investors evaluate bond returns and pricing.
How Par Amount Works
When a bond is issued, it has a fixed par amount that does not change during its life.
Bonds may trade in the market at prices that are:
- at par (equal to par amount)
- above par (premium)
- below par (discount)
Regardless of market price changes, the issuer repays the original par amount at maturity.
Example
An investor purchases a bond with a $1,000 par amount and a 4% coupon rate. The bond pays $40 annually in interest.
Par Amount vs Market Value
- Par amount is the value repaid at maturity.
- Market value is the price investors pay to buy or sell the bond before maturity.
FAQs About Par Amount
Is par amount always $1,000?
Most U.S. bonds use $1,000 as the standard amount.
Does the par amount change?
No, it remains fixed throughout the life of the bond.
Why do bonds trade above or below par?
Changes in interest rates and market demand influence bond prices.
Related Terms
