Certain investments, such as bonds, have both a face value and a maturity value. Mortgages and car loans also feature a face value and a maturity value. The financial market often refers to a bond's face value as its par value. A bond that sells for the same price as its face value is said to be "at par." Companies issue preferred stock with a face value. Preferred stockholders receive guaranteed dividend or interest payments until they sell their shares. Also, a company that declares bankruptcy must pay preferred stockholders before common stockholders.
Investment Face Value
The face value of an investment is the amount listed on the security. A $25 EE bond sold by the federal government has a face value of $25. This may be different from the security's redeemable value and selling price. Bonds that sell below their face value are "below par." A $25 bond that sells for $10 costs less than its face value. Bonds that sell for more than their face value are "above par." A $25 bond that sells for $35 costs more than its face value.
Investment Maturity Value
An investment's maturity value is the face value plus any interest. Bonds that have higher risk levels tend to pay more interest, while more conservative bonds pay less interest. A $25 bond that takes 30 years to mature will pay $25 plus accrued interest after 360 months. Assuming the bond has a 2-percent interest rate, 30 years worth of interest payments would equal $15. If the owner cashes the bond before its maturity date, he may receive less than its face value. He will still receive any accrued interest payments.
Loan Face Value
The principal amount of a loan is its face value. It is the original cost, or the original amount that a person borrows. A $100,000 mortgage has a face value, or principal, of $100,000. The face value does not include any interest charges. As interest accumulates on a loan, its actual value or payoff may differ from its original face value. For example, if you miss the first payment, the total amount you owe may increase beyond the loan's face value.
Loan Maturity Value
Similar to an investment, a loan's maturity value is its principal plus accrued interest. The maturity value is the total cost that you pay at the end of the loan. Let's assume that you borrow $1,000 from your family. You have five years to pay the $1,000 back at 5 percent annual interest. Your total cost of borrowing is $250 in interest plus the original $1,000. The loan's maturity value is $1,250.
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