Face value of a bond is
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → the price at which the bond is sold to buyers at the time of issue
The face value (par value) of a bond is the amount stated on the bond: the price at which it is sold to buyers when it is first issued, and the amount repaid at maturity. The coupon payments are calculated as a percentage of this value.
Why the other options are incorrect
Option (1) the rate at which a bond yields interest — Incorrect. The rate at which a bond yields interest is its yield, not its face value.
Option (3) the annual interest rate paid by the bond issuer to the bond holder — Incorrect. The annual interest rate paid by the issuer is the coupon rate.
Option (4) the discount rate which returns the market price of a bond without embedded optionality — Incorrect. The discount rate that gives the market price of a bond is its yield to maturity (YTM).
CBSE Applied Mathematics (Class XII):
Valuation of Bonds
