The sum which is paid at the hour of development of the bond is equivalent to?
- Corporate Bonds
- Face Value
Answer: c. Face Value
Bonds have a Face Value that is the amount of money the issuer promises to repay to the bondholder upon maturity. The amount is specified in the bond contract and is usually 1,000 or multiples of that amount. When an investor buys a bond from the issuer, they are effectively lending the issuer money.
When the bond reaches its maturity date, which is usually several years from the date of issuance, the issuer will pay back the Face Value to the bondholder.
Why the other options are not correct
In the context of bonds, a discount refers to the fact that the bond is sold for less than its face value. This indicates that the bond is priced lower than its par value, typically because the coupon rate is lower than the prevailing market interest rates or because the issuer is perceived to pose a higher risk.
When a bond is sold at a discount, the investor pays an amount lower than the Face Value to purchase the bond. When the bond matures, the difference between the discounted purchase price and the Face Value represents the potential profit or yield for the investor.
b. Corporate Bond:
An issue of corporate bonds is to raise capital. Corporate bonds are a form of debt security. They are typically sold to investors to borrow money for a specific period, and the issuer (the corporation) agrees to pay interest periodically (coupon payments) and return the Face Value at maturity of the bond to investors. Bonds issued by corporations are correct in that they are financial instruments related to the bond market, but they are not equal to the Face Value, which is the sum paid at issuance.
Yield refers to the return or interest earned on an investment, expressed as a percentage of the investment. There are several types of yields in the context of bonds, including Current Yield, Yield to Maturity (YTM), and Yield to Call (YTC), which allow investors to determine whether the bond will earn a return when held until maturity or until it is called by the issuer. Despite being an important metric for bond investors, yield does not represent the sum paid at the time of bond development, which is the Face Value.
In conclusion, the sum of money paid to a bondholder at the time of bond issuance is known as the Face Value or Par Value of the bond. It represents the principal amount the issuer guarantees to repay to the bondholder upon maturity. An investor’s potential return is determined by the Face Value of a bond, which is a fundamental characteristic of a bond. For investors and market participants in the bond market, understanding Face Value is essential.