Which of the following best defines par value?

• A. The amount repaid at maturity.
• B. The purchase price today.
• C. The annual interest rate.
• D. The price fluctuations observed in the market.

Answer: (A)

Par value is the face or principal amount of a security—the fixed amount that the issuer promises to pay back to the investor at maturity. For most bonds, this is the amount repaid at the end of the term, often $1,000 per bond, and coupon payments are calculated as a percentage of this par value. The market price today can be above or below par, and it reflects current interest rates and other factors, not the fixed amount that is repaid at maturity. The annual interest rate refers to the coupon rate (or yield), which is applied to par value to determine periodic payments, not the par itself. Price fluctuations in the market describe how the security’s price moves after issuance. So the description that captures par value is the amount repaid at maturity.