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Bond Principal, Par Value, and Trading at Par

Article Quant Q&A · Author: senorita.xi
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Summary

The document explains how principal and par value are used when discussing bonds. In common usage, both terms can refer to the amount paid at maturity, and nominal value is also used in that sense. Principal can describe the total maturity payment, including the aggregate amount owed across a holding or a principal payment made over time by a mortgage-backed security.

Par value also appears in descriptions of a bond’s market price. A bond trading at par is priced at its stated face amount, while a price below or above that amount is described as below or above par. The distinction is therefore partly contextual: principal often refers to the repayment amount, while “at par” describes the relationship between a bond’s price and its face amount. The explanation is brief and does not cover variations in bond documentation, amortizing instruments, accrued interest, or conventions for quoting prices, so readers should check the instrument’s terms when precision matters.

Key ideas

  • Principal commonly refers to the amount repaid at a bond’s maturity.
  • Par value can refer to the bond’s stated face amount.
  • A bond trades at par when its price matches its face amount.
  • Principal may also describe payments made over time by a mortgage-backed security.
  • The terms’ precise use can depend on context and instrument details.

Tags

Fixed income
Full text
# Difference between par value and principal?


# Difference between par value and principal?












Could someone explain what is the difference between principal and par value in terms of a bond?

Thanks!

## Answer by Martin Vesely (score 1)

https://quant.stackexchange.com/a/51840

Usually both principal and par value refer to payment from a bond on its maturity. Sometimes term nominal is used for this as well.

There can a little difference, however. Principal is used for a total value you get on maturity of a bond, e.g. 1 mio. USD or so-called principal payment comming monthly from MBS (Mortgage Backed Security).

Par value can be connected with price. When bond is traded at par, it means that its price 100. If the price is less than 100, bond is traded below par, in case price is above 100, it is traded above par.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.