What does 'par value' refer to in the context of bonds?

Par value, also known as face value, refers to the amount that a bond will be worth at maturity and the amount the bond issuer agrees to pay the bondholder upon maturity. It is the value that is printed on the bond certificate and is a crucial aspect of bond investing because it establishes the principal that the investor will receive back at the end of the bond's term.

When bonds are issued, they typically have a par value of $1,000, although this can vary. The bondholder receives periodic interest payments based on this par value, and when the bond matures, the par value is repaid to the investor. Understanding par value is essential because it is fundamental to calculating the yield and the pricing dynamics of bonds in the market, yet it remains distinct from concepts such as the market price or interest rates associated with the bond.