Key Components of Bond

1. Face Value (Par Value): Face value, or par value, is the amount the issuer promises to pay the bondholder at maturity. It is usually issued in denominations of $1,000 but may be other denominations. This value is critical when computing coupon payments for bonds and the return the investor will get if he or she holds the bond until its maturity. 2. Coupon Rate: The coupon rate is the rate of interest the issuer agrees to pay to the bondholder, expressed usually as a percent of the face value. For example, with a 5% coupon on a $1,000 bond, interest of $50 can be expected each year. The coupon may be paid off at regular intervals, such as annually or semi-annually. 3. Maturity Date: It is the date on which the issuer is obliged to pay the face value of the bond to the bondholder. The maturity of bonds can vary between very short term-a few months to a few years-and extremely long term-decades. The maturity date determines how sensitive the bond is to interest rate changes: in general, the longer the maturity, the more sensitive the bond will be to rate shifts. 4. Issuer: The issuer is the party that borrows the money by issuing the bond. It can be the federal, state, or municipal government, a corporation, or a supranational organization, like the World Bank. Good creditworthiness of the issuer is important because it determines the inherent risk of the bond.