Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What is the term for the face amount that a debt security will pay at maturity?

1. Market value

2. Par value

3. Book value

4. Investment value

The correct answer is: Par value

The term for the face amount that a debt security will pay at maturity is known as par value. Par value represents the nominal or dollar value of a bond or other debt instrument as indicated on its certificate. It is the amount that an issuer agrees to pay the bondholder at maturity, as well as the basis for calculating interest payments, which are typically expressed as a percentage of the par value. Understanding par value is crucial in the world of securities because it establishes the baseline for financial calculations. For example, if a bond has a par value of $1,000 and pays an annual interest rate of 5%, the bondholder will receive $50 each year until the bond matures, at which point they will receive the $1,000 back. This concept is distinct from market value, which fluctuates based on current conditions in the securities market, and book value, which refers to the value of an asset according to accounting records, not necessarily the amount realized in the market. Investment value is a more subjective appraisal of what an investor believes a security could be worth based on potential returns, but it does not correspond to the set amount that will be repaid at maturity. Thus, par value stands as the definitive answer to the question regarding