Overview: Bond Prices and Face Value
There are two ways to look at bond prices.
You can look at the price of a bond when it was issued or you can look at the current market price of the bond.
When a company, government or other organization first issues a bond, the bond will have a face value.
Image Source: Face Value of a Bond
Face Value of a Bond: Initial Bond Price
The face value of the bond is the bond price that the issuer is asking to be paid for the bond.
Another way to look at this is where the face value of the bond is the amount of money that a company is asking investors to lend them and, in return, the amount on which they will pay interest for the duration of the bond.
However, because bonds are bought and sold after their initial issuance, bond prices can change over time.
Bond prices are seen as more stable than stock prices, but the perceived value of a bond may change based on:
- The likelihood of the issuer defaulting on the bond
- If you plan to buy bonds and hold them to maturity, this will affect you less than if you plan on buying or selling bonds in the middle of their terms
- A change in overall interest rates
- And many other factors
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